Insurance Industry Could Use A Mild Hurricane Season
With all the problems the insurance industry has had over the past year and a half, they are hoping and praying that this year’s hurricane season is mild compared to past seasons. Researchers at the National Oceanic and Atmospheric Administration are forecasting and average hurricane season for Atlantic basin this year.
In its initial outlook for the 2009 Atlantic hurricane season, which runs from June through November, NOAA’s National Weather Service Climate Prediction Center calls for a 50 percent probability of a near-normal season, a 25 percent probability of an above-normal season and a 25 percent probability of a below-normal season. Global weather patterns are imposing a greater uncertainty in the 2009 hurricane season outlook than in recent years. Forecasters say there is a 70 percent chance of having nine to 14 named storms, of which four to seven could become hurricanes, including one to three major hurricanes (Category 3, 4 or 5).
Capital reserves for the industry have been depleted by the financial crisis and while they believe they have enough to handle a normal season, a Katrina-like event would likely devastate the industry for years to come. Although regulators raised capital level requirements for the industry in the wake of the 2004 storm, there is no question that the current recession will strain their ability to cope with such an event if it were to occur.
Many state regulators have also been quite firm with insurance companies over rate increases over the past few years and in some cases we’ve seen some companies leave entire markets all together as a response. This has put an additional burden on state run programs to make up for the slack and could put many state budgets in a precarious position due to the ongoing problems in the municipal bond market.
Some good news for the industry is that it appears as if the stock market has stopped it’s free fall and may have finally turned a corner. If they can get some investment gains in the short term, it could go along way in shoring up capital reserves before a major storm does occur.
