German reinsurance giant Munich Re estimated today that hurricanes Katrina and Rita could cost the global insurance industry up to $40 billion.
'The natural hazard events to date have cost substantially more than the amount anticipated for the first nine months of this year,' Munich Re chairman Nikolaus von Bomhard said. 'As the full extent of the devastation caused by Hurricane Katrina has gradually emerged, natural catastrophe risk management specialists and other companies have revised their loss estimates upwards,' he added.
Munich Re's own experts had concluded and evaluated a loss inspection of the hurricane-affected region, on the basis of which the world's biggest reinsurer put the overall insured market loss for Katrina at up to $30 billion and the insured market loss of Rita at between $5-10 billion, the group said in a statement. That means that insurers and reinsurers were likely to raise their prices.
'Catastrophes on the scale of Katrina and Rita can occur on virtually all continents,' Munich Re warned. 'The upcoming round of renewals in reinsurance business must take account of the rising loss trends and greater risk potentials. Substantially higher prices are necessary to continue covering natural hazard risks in the future.'
For Munich Re itself, hurricanes Katrina and Rita were expected to knock around €650m off bottom-line earnings this year. Hurricane Katrina alone, which devastated large areas in the southern US in August, was expected to burden Munich Re's after-tax profit by around €500m and as much as €1.1 billion before tax.
And Hurricane Rita, which made landfall in the US on September 24, was expected to result in a net loss burden of €150m and a pre-tax burden of €230m.
With regard to the group's own earnings targets for the current year, Munich Re said it remained optimistic that it would still be able to achieve its target of net return on equity of 12% in 2005.