The insurance industry weighs in on losses

Catastrophe related losses have in part caused Standard & Poor’s to place reinsurers Swiss Re, Transatlantic Re, IPCRe, PXRE and Renaissance Re on CreditWatch with negative implications while Montpelier Reinsurance Ltd. carries a negative outlook.

U.K.-based Lloyd’s insurance market is also on CreditWatch with negative implications whereas the Endurance group and Arch Capital group Ltd. carry positive outlooks. Other insurance and reinsurance companies are independently reassessing total damages incurred.

Munich Re recently estimated its total damages from Hurricanes Katrina and Rita at about 1.33 billion euros (US$1.6 billion). The Company says it will likely have to pay out about 650 million euros after tax however Munich remains optimistic that it will achieve a 12% return on equity this year, as long as the purchase of HVB Group by UniCredito Italiano SpA is completed in 2005. Munich anticipates that substantially higher reinsurance prices will be necessary after the storms.

Munich Re almost tripled its Katrina claims forecast to 1.1 billion euros from 400 million euros. Total insured losses from Rita for Munich are estimated to reach between US$5 billion and US$10 billion. Its own damages related to Rita, Munich says, will be about 230 million euros, and 150 million euros after tax.

Munich Re, however, stands to benefit from the sale of Germany bank HVB because the reinsurer is HVB’s biggest shareholder, with an 18.3% stake. “If we decide to exchange shares, then we would realize a disposal gain on the basis of current stock market prices,” Munich Re spokesperson Florian Woest says.

Insurance Holdings Plc, a Lloyd’s of London insurer, has also recently predicted total losses resulting from Katrina will be about 145 million pounds (US$257 million).

Fitch Ratings, the international rating agency, says “there is no immediate impact on Lloyd’s ratings.”

“In view of Lloyd’s unique capital structure, the possible concentration of losses would be a concern to Fitch,” Fitch said, “especially if this results in substantial calls on the Central Fund.”

Berkshire Hathaway (BRK.A; BRK.B) recently stated “it will incur 3-5% of the industry losses associated with Hurricane Katrina.” If the total industry losses remain between US$40 to $60 billion, Berkshire’s estimate would amount to losses of anywhere in the range of US$1.2 to $3 billion.

“Due to the extraordinary devastation created by Hurricane Katrina, it is particularly difficult to estimate an industry loss for this event and we don’t intend to at this time,” the company said in a press release. “However, Berkshire Hathaway has previously stated that it expects its share of losses from catastrophes such as Hurricane Katrina to be 3-5%. Berkshire continues to believe this to be true. …”Canadian-based Manulife Financial Corporation [TSX/NYSE/PSE: MFC; SEHK: 0945] estimates its after-tax losses related to damages left by Hurricane Katrina will be US$165 million. The company’s estimate is based on a review of all reinsurance contracts in force, and assumes the full limit of each contract will be paid. The company says it does not expect any significant level of claims will arise from its life insurance operations.

Funds under management by Manulife Financial and its subsidiaries were Cdn$364 billion (US $297 billion) as at June 30, 2005.