Bermuda-based Aspen Insurance Holdings Ltd. has updated its assessment of estimated losses from Hurricane Katrina and the New Orleans Flood.
Based on information available and evaluations to date, the company estimates that its retained losses, after recoveries from its outwards reinsurance program and the impact of outwards and inwards re-instatement premiums, are likely to be between $325 million and $400 million on an after tax basis. This equates to estimated gross losses to the company of between approximately $840 million and $925 million.
Aspen has received several new and very preliminary indications from brokers that certain cedants’ losses are likely to be considerably larger than anticipated and, for some cedants, may exceed their 1 in 100 year (1% exceedance probability) or even 1 in 250 year (0.4% exceedance probability) loss return period calculations for US wind losses. This would imply industry insured losses for Katrina considerably in excess of $40 billion. As a consequence, the company conducted a review of its initial loss estimates in respect of Hurricane Katrina and the New Orleans Flood to reflect these significantly more adverse potential outcomes.
The company’s estimates and review discussed above and in relation to Hurricane Rita discussed below necessarily remain preliminary, involve the exercise of considerable judgment and reflect a combination of ground-up evaluations, information available to date from brokers, the application of Aspen’s catastrophe modeling systems, market intelligence, initial tentative loss reports and other sources.
Based on the range of estimated gross losses to the company related to Katrina, the company will have exhausted its retrocessional outwards reinsurance program protecting its property reinsurance and specialty reinsurance lines of business in respect of this loss. On the same basis, approximately $40 million remains available under the company’s outwards reinsurance cover in relation to its offshore direct energy account and approximately $75 million remains available in relation to the company’s excess and surplus lines business written by its U.S. subsidiary.
In addition to Aspen’s outwards reinsurance program, Aspen has further cover of up to $100 million under a fully collateralized risk transfer swap placed with a non-insurance counter-party. This would provide Aspen with recoveries if the level of industry losses as determined by Property Claims Services from Katrina in the continental United States exceed $39 billion, with the maximum of $100 million recoverable, on a linear basis, if such industry losses reach $47 billion. Any potential recoveries under this catastrophe swap contract have been excluded from the company’s estimated net loss figures above.
Aspen also estimates that its retained losses from Hurricane Rita after recoveries from its outwards reinsurance program and the impact of outwards and inwards re-instatement premiums are likely to be between $50 million and $60 million on an after tax basis, which are based on estimated gross losses to the company of between $150 million and $200 million.
Based on these estimated gross losses, Aspen has approximately $50 million of further outwards reinsurance cover available in relation to its marine and energy physical damage losses and approximately $200 million of additional reinsurance cover available under its primary retrocessional program.
Due to the scale of Katrina and the New Orleans Flood in particular, including legal and regulatory uncertainty, an inability to access portions of the affected areas, the complexity of factors contributing to the losses and the preliminary nature of the information used to prepare these estimates, there can be no assurance that Aspen’s ultimate losses associated with either Katrina, the New Orleans Flood, or Rita will lie within the stated ranges.
Aspen will discuss its losses from Katrina and Rita and the New Orleans Flood during its third quarter earnings call scheduled for Oct. 28.
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