As reinsurers move on to this year's renewals in a hard market for US cat risks, the legacy of the 2005 hurricane season - Katrina, Rita and Wilma - must continue to be managed.

Although a large percentage of Katrina claims have been settled, a deterioration of 2005 loss reserves has continued to occur. In many cases, average settlements have been well above the factors used in reported reserves. Insolvencies have also created a complex set of issues for reinsurers, especially in the area of offset. Many contracts require a significant unearned premium return resulting from liquidations. The Florida Department of Financial Services and the Florida Insurance Guaranty Association are faced with an unprecedented number of insolvencies and the resulting claims settlement responsibilities.

Katrina may have a longer and more expensive "tail" than previous hurricane catastrophes. It is important that reinsurers investigate and understand the components of the remaining reserves and the potential for additional loss development.

This Feature item appeared in issue 109 of JTW News - October 2006

Author: Garry Nelson - Devonshire Group