Credit Crunch Could Impact Insurer’s Claims Paying Ability
A report released yesterday by A.M. Best, a leading credit rating agency, casts concerns about the claims paying ability of insurers, due the credit crisis embroiling the nation’s financial markets.
Investors are showing a limited appetite for capital-market offerings designed to raise cash for claims payments, Best said. In addition, insurers’ exposure in hurricane-prone states to properties foreclosed and abandoned as a result of the subprime mortgage crisis has come under review.
More than 500,000 properties in coastal areas from Maine to Texas have been foreclosed on due to the subprime mortgage crisis. Florida alone has more than 100,000 properties currently subject to foreclosure. The report says insurers may not realize the extent to which their books of business are exposed to foreclosed properties.
Weather forecasters are predicting an above average hurricane season that kicks off in less than two weeks. If a major hurricane were to strike the U.S. this year, the results could be devastating to the entire industry and to the property insurance sector especially.
The industry has already been hit hard by the subprime collapse, with losses to date exceeding the amount paid out in claims after Hurricane Katrina. With the current financial crisis far from over, the final total has yet to be tallied.
The current instability in the stock market also has many analysts predicting a weak outlook on the industry’s future investment income which make up the bulk of their profits. Homeowners may see rates rise in the near future even without a major catastrophe occurring.
