KA’ANAPALI BEACH,
At $57.7 billion, “last year’s catastrophe losses dwarf even those from 9-11
and Hurricanes Andrew and Iniki in 1992,” said Frank
J. Coyne, chairman, president and CEO of ISO in remarks at the 80th
Annual Meeting of the American Association of Managing General Agents (AAMGA).
“That insurers have been able to cover those
losses is a testament to their strong capitalization prior to last year’s
storms and their risk management,” said ISO’s chief executive.
The industry’s ability to withstand the record losses driven by hurricanes
Katrina, Wilma, Rita and others “is also a testament to the efficiency and
scale of global risk-sharing mechanisms,” said Coyne.
Although catastrophe losses toted nearly $58 billion, ISO estimates
ISO’s chairman reminded more than 300 wholesale property/casualty managing
general agents and other insurance professionals that rates on commercial
renewals have been dropping, according to ISO MarketWatch
and the Council of Insurance Agents and Brokers, with rates declining an
average of almost 3 percent for all commercial accounts in the first quarter of
2006.
The only exception, said Coyne, was rates for commercial property coverage,
which rose about 2 percent as a result of increases in catastrophe-prone areas.
Coyne cited extraordinary losses driven by the natural disasters in explaining
the rise in commercial property rates.
“Excluding amounts covered by residual market mechanisms, the hurricanes of
2005 caused $25 billion of insured losses on residential and commercial
properties in
“Despite headlines about rate rises in areas devastated by last year’s
catastrophes, the Consumer Price Index for tenants’ and household insurance
dropped 2.2 percent in the first quarter of 2006. In sum, insurance markets are
softening — not hardening as the pundits predicted.”
In his remarks on the state of the property/casualty industry, Coyne cited
analyses by ISO’s catastrophe modeling subsidiary AIR Worldwide to show how the
industry’s growing exposure accounts for increasing catastrophe loses. The AIR
models adjust for increases in the costs of construction and the number of
residential and commercial buildings, plus changes in their characteristics.
“Air’s analysis, indicates catastrophe losses double about every ten years,
just because of exposure growth. AIR modeling indicates Hurricane Katrina was
just a one-in-thirty year event and catastrophes causing $100 billion or more
in insured losses are easy to imagine,” he said
Coyne also mentioned the threat of terrorism and discussed one scenario in
which terrorists attack
Noting the Terrorism Risk Insurance Act and its
federal reinsurance backstop is due to expire in 2007; Coyne urged development
of “a long-term mechanism for insuring against terrorism be
it public or private or a partnership that brings private industry and
government together.
In the near term, ISO expects the industry’s strong capacity, with surplus
having risen to $427 billion at year-end 2005, to fuel further rate cuts 2006,
said Coyne. He projected industry premium growth for 2006 would be less than 1
percent.
“But despite weak premium growth, we expect insurers’ underwriting results to
improve as catastrophe losses recede from 2005’s record level,” he said.
Coyne challenged the managing general agents and the industry at large to “do
well by doing good — seeking opportunities to profit by helping society meet
its changing insurance needs.”
About ISO
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