|Quiet '06 hurricane season may calm rate hikes
|By Michael Giusti Bankrate.com
are more excited by the lack
of landfalling hurricanes, so
far in 2006, than the nation's
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
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.
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
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
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
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.