Emma Jones says with the start of a new hurricane season insurers are in a vulnerable position
June 1 has come and gone and the 2006 North Atlantic hurricane season is officially underway. With the forecasters already predicting another active season, many Lloyd's insurers fear another severe year could severely deplete their reserves leaving some market players in a vulnerable position.
Concerns have also been raised that reinsurance provisions will not be enough to cover another bout of catastrophe losses.
Rating agency AM Best has rather apocalyptically predicted major windstorms in the US could cause $100bn worth of property loss and wipe out 20 to 40 insurers.
And despite predictions from the Association of Lloyd's Members (ALM) that it is "reasonable" to forecast that hurricane losses in 2006 and 2007 will not be as high as those experienced in the previous two years, some underwriters are less than optimistic.
"There will be a number of people crossing off everything - there will either be no major storm, which is highly unlikely, or that if there is one it is not to the same proportions as the last few years," one insider says.
"People thought that the 1 January renewal season was bad with limited capacity and pricing, but it has got worse. For 1 July, which is a common renewal date for US business, a lot of clients are coming in earlier than
normal to get what capacity is available. By August it will be limited if there is not an awful lot left."
Is the apparent growing severity of the annual hurricane season a result of climate change? Some experts certainly say so, pointing the warmer tropical seas which are the breeding ground for the killer storms.
And it's not just increased hurricane activity that insurers have to worry about when it comes to climate change.
Investor F&C Asset Management believes climate change will pose a challenge to the insurance sector with the prospect of "higher or less predictable payouts".
Alain Grisay, chief executive at F&C, says that "at the end of the day, insurers are the first ones to pick up the tab".
"The rising frequency, severity, and most worrying of all, unpredictability of extreme weather events mean that the past is no longer an accurate predictor of the future."
Lloyd's has also warned that the insurance industry must face up to the growing threat of climate change or risk being "swept away".
A report out this week, Climate Change, Adapt or Bust, published by Lloyd's, concluded that recent natural disasters have revealed the inadequacy of capital and pricing models.
It stated that the industry must take a new approach to underwriting, looking ahead and factoring in climate change scenarios, rather than simply basing decisions on historical records.
Rolf Tolle, Lloyd's franchise performance director says the insurance industry "has not taken catastrophe trends seriously enough".
"Climate change is today's problem, not tomorrow's. If we don't take action now to understand the changing nature of our planet and its impact, we will face extinction." IT
