So who's vulnerable ? and will 2006 be the year?

Summary

AM Best announced today that a $100 bn + hurricane loss 
could send as many as 50 insurers to the wall.

A- rated companies are particularly vulnerable especially 
the monoline cat players including the new Class of 2005 
generally rated A-. 

Indications are that 2006 could well be a high activity 
catastrophe year. 

Analysis

Insurers, investors and regulators alike wait with
bated breath to see if 2006 is the year which finally
changes the assumption that the best time to invest
is following a large loss. 

The insurance landscape could change dramatically
if 2006 proves to be another high catastrophe year.

2005, which saw the demise of a number of re-insurance
companies, shows that A- rated companies are sitting on 
the edge of a cliff; a single notch downgrade leading not
just to a reduction in business volume but often all the
way down the slippery slope to run-off.  That leaves the
monoline cat players including the new Class of 2005 
with their start up A- ratings particularly vulnerable.

Increased catastrophe activity dramatically increases 
the risk of extensive downgrades. 

Data published by the Insurance Information Institute
forecasts that the 2006 hurricane season will be more
than twice as active as the average of the 50 
year period 1950-2000 and not that much less active
than 2005. For example forecasts suggest 5 intense 
hurricanes in 2006 compared to an average of 2.3 
during that 50 year period and 7 in 2005.  

Over the last 100 years there has been around 
50% risk of a major (cat 3,4,or 5) hurricane hitting 
the US Coast in any one year.   That risk is forecast to increase to more than 80%
in 2006. The risk of a major hurricane hitting the 
East Coast including Florida is considered to be more 
than double the century average at nearly 65%, whilst
the risk of a major hurricane hitting the Gulf Coast 
from the Florida Panhandle to Brownsville Texas 
is 50% higher than the century average with a 
47% expectation.

If just one of these losses comes close to the $100 bn 
"big one" which AM Best foresees in the near future, 
then all bets are off as to the shape of the 
insurance industry in the coming years and of 
course when all eyes are focused on hurricanes 
in the south, that’s just when a Californian quake will
come along to confuse matters.