Hurricane Irene: Private-sector insurance sound; state-run doomed
Posted on August 27th, 2011
Private-sector insurers have more than enough financial resources to cover any damage caused by Hurricane Irene, although state-run property insurers may not be so lucky, an insurance association says.
U.S. auto, home and business insurers saved about $564.7 billion in policyholders’ surplus by the end of the first quarter, according to the Insurance Information Institute (III).
But insurers must pay for about $15 billion in claims resulting from natural catastrophe losses, most of which were tornadoes that occurred between April and June. The recent turmoil in the U.S. equity markets, a source of revenue for private-sector insurers, also decreased the surplus.
The III said the surplus still amounts to more than half a trillion dollars.
“Irrespective of the prospect of shrinkage in policyholders’ surplus in 2011 following its first-quarter peak, the bottom line is that the industry is and will remain extremely well capitalized and financially prepared to pay very large scale losses, as necessary,” Robert Hartwig, president of the III and an economist, said in a statement.
Hurricane Irene may hurt state-run property insurers’ finances, the group said.
These insurers operate in the residual market, so they do not charge premium rates that reflect the true cost of the risks they cover. Residual market insurers often operate at deficits, or from little surplus, even when there are minimal catastrophe losses, the III reported.
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Tags: Hurricane Irene, Insurance
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