Katrina & Rita Opened a “Pandora’s Box” for P/C Industry, Says S&P

A new report from Standard & Poor’s notes that “Hurricane Katrina, followed closely on its heels by Hurricane Rita, wound up revealing the flaws in many insurance-industry assumptions.”

The article, titled “Katrina Opens Pandora’s Box For Insurance Industry,” says that many assumptions were sent reeling by the devastation unleashed upon the New Orleans region in the hurricanes’ wake. All of the 1.6 million claims (900,000 in Louisiana alone) that the Insurance Services Office estimates will emerge from aftermath will come to personal, commercial, and reinsurance carriers.

“The aftermath has put insurance companies very much between a rock and a hard place,” stated S&P credit analyst Thomas Upton. S&P notes that “insurers have won praise for their management of the crisis but have also been earning brickbats from the consumer press.”

Among some of the report’s highlights S&P notes that both State Farm and Allstate are “being very tight lipped about their future personal lines involvement in Louisiana.” It also predicts that “reinsurers exposed to catastrophe-prone regions such as the Gulf are most likely to seek 30 to 100 percent rate increases, and deductibles will jump substantially.”

In a rather ominous conclusion S&P said: “It’s not over yet. Forecasters—including Tropical Storm Risk in London as well as climatologists at Colorado State University—are predicting a 2006 hurricane season that will be 60 percent more active than the norm.”

The report is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit research and analysis system, at www.ratingsdirect.com. You may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to: research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor’s public Web site at www.standardandpoors.com for 24 hours after publication date.