Insurers Brace for 1999 Hurricane Season, Eye Securitization and Other Alternatives to Finance Weather-Related Losses

NEW YORK, July 12, 1999 – Hurricane season has begun and will peak between August and November. Tens of millions of residents living along the coastal regions of Florida, Louisiana, Texas, North Carolina, South Carolina, Long Island (N. Y.), and New England face the prospect of punishing storms over the coming months. Potential Atlantic hurricanes sport names such as Bret and Dennis, Harvey and Katrina, Maria and Philippe, and Stan and Wilma.

Faced with growing catastrophic losses from hurricanes and other tropical storms, insurers are looking to supplement traditional methods of financing risk. They are tapping the $28-trillion U.S. capital markets to securitize the risk of weather-related losses with new financing methods, such as "Act of God" bonds and catastrophe futures and options.

Sharply higher catastrophe losses in this decade have contributed significantly to growth in the U.S. property/casualty insurance industry's losses and loss-adjustment expenses. (See attached chart.)

At an inflation-adjusted total of $99.5 billion, catastrophe losses in the 10 years since 1989 are nearly twice as much as all catastrophe losses in the preceding 40 years going back to 1949 when record-keeping began.

Insurance Services Office, Inc. (ISO) estimates that through mid-1999 investors have committed about $3 billion in the capital markets to vehicles for securitizing catastrophe risk, most of it in catastrophe, or "Act of God," bonds. Catastrophe options indices based on insurers' loss information provided by ISO are traded on the Chicago Board of Trade (CBOT) and the Bermuda Commodities Exchange (BCOE).

ISO can assist you in your reporting on hurricanes and other catastrophes with information on insured property losses and number of claims filed with insurers including a comparison of past storms, losses, and claims data by date and state.

The attached two-page fact sheet is compiled from data in ISO's Property Claim Services (PCS) database the most comprehensive database in the property/casualty industry on property losses from weather-related disasters. It highlights some of the more significant information on past catastrophes, including hurricanes, and dollar value of property damage that may be useful to you as background. Experts in ISO's PCS unit can also provide analyses of catastrophe losses of special interest to you.

Insurance Services Office, Inc. (ISO) serves property/liability insurers with statistical, actuarial, underwriting, and claims information and analyses; consulting and technical services; and information about specific locations.

Editors Note: Please contact us if you'd like a camera-ready copy of this graph or if you'd like the plot points for your own graphic.

INSURANCE SERVICES OFFICE, INC. PROPERTY CLAIM SERVICES

HURRICANE FACT SHEET

Hurricane Losses by Year (1994-98):
Number of Hurricane Catastrophes and
Estimated Insured Losses (adjusted to 1998 dollars)*

1998 2, $3.3 billion
1997 1, $60 million
1996 4, $1.9 billion
1995 3, $3.4 billion
1994 0
 

* ISO can provide information on dollar amounts of hurricane losses and number of claims, broken down by date, quarter, and state. ISO also can provide loss data on other natural disasters in the same format.

Ten Costliest Hurricanes and Estimated Insured Loss
(adjusted to 1998 dollars):

Hurricane Andrew - August 1992 $18.0 billion
Hurricane Hugo - September 1989 $5.5 billion
Hurricane Georges - September 1998 $3.0 billion
Hurricane Betsy - September 1965 $2.7 billion
Hurricane Opal - October 1995 $2.2 billion
Hurricane Iniki - September 1992 $1.9 billion
Hurricane Frederic - September 1979 $1.7 billion
Hurricane Fran - September 1996 $1.7 billion
Hurricane Cecelia - August 1970 $1.3 billion
Hurricane Alicia - August 1983 $1.1 billion

 

Ten Most Intense Hurricanes, Categories 5 and 4, 1900-1998
(measured by Saffir-Simpson Hurricane Disaster-Potential Scale):**

Florida (Keys) - 1935 Category 5
Camille - 1969 Category 5
Andrew - 1992 Category 4
Florida (Keys)/So. Texas - 1919 Category 4
Florida - 1928 Category 4
Donna - 1960 Category 4
Texas (Galveston) - 1900 Category 4
Louisiana (Grand Isle) - 1909 Category 4
Louisiana (New Orleans) - 1915 Category 4
Carla - 1961 Category 4
 

** Saffir-Simpson Hurricane Disaster-Potential Scale classifies hurricanes on their intensity and damage potential under five categories, with Categories 5, 4, and 3 being the most destructive. The scale does not measure insured property losses.

Catastrophes by Year (1989-98):
Number of Catastrophes and Estimated Insured Loss
(adjusted to 1998 dollars)***

1999 (6 Mos.) 18, $5.1 billion
1998 37, $10.1 billion
1997 25, $2.6 billion
1996 41, $7.7 billion
1995 34, $8.9 billion
1994 38, $18.7 billion
1993 36, $6.3 billion
1992 36, $26.7 billion
1991 36, $5.7 billion
1990 32, $3.5 billion
1989 34, $10.0 billion
 

*** To insurers, a catastrophe is a single incident, or series of related incidents, that cause insured property losses totaling at least $25 million and affect a significant number of policyholders and insurers.

Release: Immediate

Contacts:
Giuseppe Barone / Erica Helton
MWW Group (for ISO)
201-507-9500
gbarone@mww.com / ehelton@mww.com