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A Calm Eye of the Storm

Competitive carriers drive down premiums

By Russ Banham | Updated on May 01, 2007

According to William Gray, the meteorological equivalent of Dr. Doom, the outlook for the 2007 Atlantic hurricane season is perilous–as many as 17 named storms, five hurricanes rated Category 3, 4 or 5 with wind speeds of 111 miles per hour or greater, and a 74% chance that one will hit the U.S. coast, when the normal odds have been closer to 50% over the past century. But not even predictions by Gray, the head of the Tropical Meteorological Project at Colorado State University, could elicit much more than a collective shrug out of the insurance industry that, only two years before, had to absorb $62 billion in losses from a record season that devastated large sections of the southeastern U.S. “Insurers should be able to weather it, no pun intended,” says Don Bailey, CEO of broker Willis North America in New York.

Complacent? Arrogant? No, just flush. In one of the great industry turnarounds, the property/casualty insurance market that survived stunning losses from 9/11, corporate scandals like Enron Corp. and a series of record-breaking hurricanes is now swimming in capital. “There is so much capital in the industry right now, with more than $6 billion raised from sidecars, another $6 billion from insurance linked securities, nearly $9 billion coming from startup insurers and reinsurers, and another $12 billion coming from existing insurers, and that’s just the last 15 months,” estimates Robert Hartwig, president and chief economist of the New York-based Insurance Information Institute.

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