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2006: A look back - A look ahead  
  A quiet 2006 produced record profits for insurers but a number of scenarios could trigger a disastrous 2007 with $100 million or more in claims.
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Quiet '06 hurricane season may calm rate hikes

Few industries are more excited by the lack of landfalling hurricanes, so far in 2006, than the nation's insurers.

That's because following 2005 -- the most costly year on record for U.S. insurers -- another blockbuster hurricane season could have spelled disaster for the insurance markets.

The slower-than-expected hurricane season comes as especially good news since insurers were bracing for another active year. Hurricane experts predicted as many as 17 named storms to make landfall in 2006, but as the June 1 to Nov. 30 Atlantic hurricane season drew to a close, only two tropical systems had hit the continental United States.

The lack of activity has translated into a windfall for insurers. According to the Insurance Information Institute, or III, an insurance trade group based in New York, property and casualty insurers are on track to register record after-tax net income, with $56 billion in income so far this year -- a 22 percent jump from last year.

That performance has received a tentative nod of approval from Wall Street. Property casualty insurers' stocks are up 6.84 percent on average for the year, just a few points behind the S&P 500 index.

"Wall Street realized this was a great year, but they also recognized that we are not out of the woods yet," says Michael Barry, spokesman for the Insurance Information Institute.

Unfortunately for consumers, however, record-breaking income for insurance companies did not translate to lower insurance premiums. In fact, nationwide homeowners insurance costs jumped, on average, 4 percent in 2006 to a nationwide average of $739 per household.

If you live in a hurricane zone, costs took an even steeper increase. Depending on where a house was located, homeowners along the coast saw increases of 20 percent to 100 percent. Some state insurers of last resort hiked rates even more.

The force behind those rate hikes is a combination of tighter underwriting rules and something called reinsurance.

Reinsurance is a type of insurance taken out by insurance companies to protect them from worst-case scenarios, like Hurricane Katrina.

In 2005, reinsurance companies picked up 45 percent of hurricane losses. That means reinsurance companies paid out about $2.59 for every $1 they charged in premiums.

As a result, reinsurance rates charged to insurance companies with exposure in hurricane-prone areas jumped 100 percent to 300 percent. Nationwide, reinsurance rates are up 20 percent to 30 percent on the year.

-- Posted: Nov. 1, 2006
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