Insurers Remain Strong As Irene Advances

Hurricane Irene has rightfully concerned the millions of Americans who reside within the storm's projected path but the private-sector insurers who cover their properties have the financial resources to pay whatever insured claims Irene generates, according to the Insurance Information Institute (I.I.I.). "More than half a trillion dollars had been set aside by the nation's auto, home and business insurers in the form of a policyholders' surplus by the end of the first quarter of 2011.

 

This $564.7 billion surplus, a dollar amount equivalent to the industry's cumulative net worth was, and remains, a reliable indicator of the industry's claims paying ability," said Dr. Robert Hartwig , president of the I.I.I. and an economist. Dr. Hartwig acknowledged, however, that the first quarter of 2011, which concluded on March 31, likely represented the peak in the industry's capital position for this calendar year. U.S. auto, home and business insurers have paid, or are in the midst of paying, some $15 billion in claims resulting from natural catastrophe losses--mostly tornadoes which occurred during the second quarter of 2011 (April-June).

 

The National Oceanic and Atmospheric Administration (http://www.noaa.gov/) (NOAA) incorporated not only the tornadoes but also this year's floods, droughts and severe winter weather into its list of nine separate U.S. disasters, each of which caused an economic (as opposed to an insured) loss of $1 billion or more--tying a record set in 2008, according to statement issued by NOAA (http://www.noaanews.noaa.gov/stories2011/20110817_weatherready.html) on August 17, 2011. Insured flood losses are paid out primarily by FEMA's National Flood Insurance Program (NFIP). (http://www.fema.gov/business/nfip/) Besides these natural disasters, the recent turmoil in the U.S. equity markets, a source of revenue for private-sector insurers, has also contributed to a diminishment of what had been only months ago a $564.7 billion policyholders' surplus, even as the figure remains well above the half-trillion ($500 billion) mark, the I.I.I. believes.

 

"Irrespective of the prospect of shrinkage in policyholders' surplus in 2011 following its first-quarter peak, the bottom line is that the industry is and will remain extremely well capitalized and financially prepared to pay very large scale losses, as necessary," Dr. Hartwig stated.

 

The financial condition of state-run property insurers of last resort, however, may be adversely impacted by Hurricane Irene. Because most of these entities operate in what is known as the residual market, they do not charge premium rates that reflect the true cost of the risks they cover. As such, these residual market insurers often operate at deficits, or from slim positions of surplus, even in years when then is little, or no, catastrophe losses, according to the I.I.I.'s recently updated white paper, Residual Market Property Plans:

 

From Markets of Last Resort to Markets of First Choice (http://www.iii.org/white_papers/residual-market-property-plans-from-markets-of-last-resort-to-markets-of-first-choice-2011.html). Property owners often find themselves in the residual market when they are unable to acquire an insurance policy in the standard market. For additional information on the industry's financial condition, and the U.S. residual property insurance markets:

 

Financial and Market Conditions (http://www.iii.org/issues_updates/financial-and-market-conditions.html)

Residual Markets (http://www.iii.org/issues_updates/residual-markets.html)

 

Source : insurancenewsnet.com