Just whistling in the wind

With less than eight weeks to go until the end of the 2006 hurricane season the very mention of the 'H' word is still sending CEOs diving for the nearest mahogany or to pat their head with fervour.

It's no surprise that 30 November is the day when (touch wood) they can breath a sigh of relief after a "relatively quiet" hurricane season.

So far, it has proved to be a benign season with hurricane experts downgrading their forecasts on numerous occasions. The Atlantic hurricane season has, so far, produced nine named storms and five hurricanes compared to an initial prediction of between 13 and 16 tropical storms with eight to 10 of these growing into hurricanes.

Experts are now expecting just one more hurricane and two more named storms between now and the end of November. But insurers are cautious, saying it is far too early to brand the 2006 hurricane season as mild.

Stephen Catlin, chief executive of Catlin Group, says: "There is currently an amount of euphoria about the current hurricane season. While this euphoria grows more appropriate as the days pass, we must remember that the hurricane season does not end until 30 November."

Forecasters' readjustments, however, are likely to ease insurers' and reinsurers' concerns and pose some interesting questions about what lies ahead in 2007.

Catlin is predicting that premium rates for non-catastrophe exposed classes of property and casualty insurance and reinsurance worldwide could decrease more rapidly if the current benign season continues.

In contrast, rates on catastrophe-exposed classes are unlikely to decrease, says Catlin, because demand still outstrips supply. And if the next eight weeks mirror that of 2005 then rates will increase substantially and capacity will be squeezed further.

Reinsurers are expecting the next eight weeks to have little impact with early indications that rates will remain high. Munich Re says average premiums for the 1 July renewals increased by 100% -150%, and these are likely to hold for 1 January 2007.

But, some warn of difficult times to come. ISO assistant vice president for financial analysis Michael Murray says: "Even if we aren't struck by any major storms, we are already seeing signs that recent results are spurring increased competition in insurance markets not exposed to hurricanes. And that increased competition will eventually undermine premium growth and underwriting results."

Whichever way the wind blows in the remainder of 2006, the heightened sensitivity to catastrophe cover is likely to provide further opportunities for the insurance industry.

As Robert Chase, director of underwriting at Kiln, puts it: "More people want insurance [against the risk of earthquakes and hurricanes] and sellers of insurances are in a sellers' market." IT