Insurance of hurricane-prone areas questioned as US prepares for Rita

Senior insurance executives have expressed fears that a further hurricane on the scale of Katrina would be catastrophic for the insurance industry.

The warning came as it was predicted that a further storm, Rita, will make landfall along the Texas/Mexico coast south of Houston on Friday.

As Insurance Times went to press tracking companies predicted that the storm would intensify to a category three hurricane.

One senior Lloyd's source said: "The reinsurers haven't stopped paying out on last year yet. If there is another hurricane [on the scale of Katrina] it would be disastrous.

"We model for two or three catastrophes a year. If there is another Hurricane Katrina it will knock us over - and several others too."

Others questioned whether the insurance industry should continue to insure hurricane-prone areas.

Another source said: "Sooner or later the industry will have to take a proper look at this. These kind of events are becoming more frequent and more severe, and questions should be asked about whether the industry can carry on picking up the bill."

Meanwhile, Lloyd's has estimated a net loss of £1.4bn due to Hurricane Katrina.

In a statement Lloyd's said: "Based on current information, Lloyd's believes any impact on the Central Fund would be immaterial.

"There is nothing to suggest that any syndicate would not be able to trade forwards as a direct result of Hurricane Katrina."

Ratings agency Moody's agreed that the loss was "containable", saying it considered it would not be an issue for the Central Fund.

Fitch also said there would be no immediate impact on the financial strength rating of Lloyd's.

Lloyd's however remains under threat of a rating downgrade by Standard & Poor's, which placed Lloyd's on creditwatch with negative implications last week.

Loss estimates continue to emerge
PXRE - increased max loss to $300m from $235m

Arch Capital - £160m maximum loss

FM Global - pre-tax loss of $300m

Max Re Capital - $60m to $90m loss

AXA Re - $200m pre-tax loss

HCC Insurance Holdings - $32.5m net loss

Olympus Re downgraded to B+ from A- by AM Best