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Reinsurance capacity falls


gaf63
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IMO,

this is one of those "not a matter of if but when scenarios".

 

We cannot have all the turmoil we have been going through and also have sufficient capitalization to meet demands of this industry.

 

I think we may see the pot start to percuolate a bit. If so, should be in for some interesting times.

 

Oh, for some reason I had a prob opening up your link Gaf, this is another:

http://www.ft.com/cms/s/0/a2ec23ee-4e44-11de-a0a1-00144feabdc0.html?ftcamp=rss

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Mungerville has said this before but the best thing for well capitalized insurers like FFH/ORH would be a high cost storm year. Many companies (insurers and reinsurers) have no 'wiggle room' as their balance sheets have been impaired by investment losses. Sounds a little dark though...

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Well, guys, at this point the best thing to do would be to put a popcorn bag in the microwave, open a beer and watch The Weather Channel.  ;)

 

And to entertain us between the tv ads, I have found this terrific tool that some of us have already seen to help us forecast what will happen with ORH stock this year  :o

 

http://4.bp.blogspot.com/_8NP85xJ2nMc/SOMX0-Kr1AI/AAAAAAAABLs/Bt4u0umLSn8/s320/weather+forecasting+stone.bmp

 

Cheers!

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I dont want to tell you which is my team but a hint is they havent won since 1967 :'( though I did have a beer and pizza while watching the Pens/Wings tonight.

Great game.

 

Should be an "interesting" hurricane season no matter what happens.

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Well, guys, at this point the best thing to do would be to put a popcorn bag in the microwave, open a beer and watch The Weather Channel.  ;)

 

And to entertain us between the tv ads, I have found this terrific tool that some of us have already seen to help us forecast what will happen with ORH stock this year  :o

 

http://4.bp.blogspot.com/_8NP85xJ2nMc/SOMX0-Kr1AI/AAAAAAAABLs/Bt4u0umLSn8/s320/weather+forecasting+stone.bmp

 

Cheers!

 

for what it's worth:

 

The national hurricane center is predicting a 50% chance of a normal season, 25% above normal, and 25% below normal... from what I can tell, they have undershot what really happened in the past 5 years.

 

 

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for what it's worth:

 

The national hurricane center is predicting a 50% chance of a normal season, 25% above normal, and 25% below normal... from what I can tell, they have undershot what really happened in the past 5 years.

 

Couldn't they simply say "we ran a crapload of models and have no idea what is going to happen this year"? Of course, that would put some folks out of a gig so...

 

-Crip

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Partner24, very funny  weather forecast method.

I think I'm going to use it.  ;D

 

I wish I had invented this humoristic tool, but I think I first saw it used in an investor presentation (a Sanjeev one?).

 

Anyway, that's a good idea to use it if you want to lunch a new reinsurance analyst service. It's worth as much as predicting the short term stock price of a given stock. Oh wait, maybe I'm overestimating the power of stock price predictions here so it would actually give you a hedge  ;)

 

Cheers!

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The national hurricane center is predicting a 50% chance of a normal season, 25% above normal, and 25% below normal... from what I can tell, they have undershot what really happened in the past 5 years.

 

 

So, the weighted average forecast would be "normal?"  Those guys at the NOAA do great work during the hurricane season to forecast the path and intensity of actual storms that have developed or storms that are imminent.  However, they would do themselves a great favour to not prepare their season forecast using whatever witchcraft they have at their disposal...

 

SJ

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Capacity may have fallen but how does the fall in property prices in the Southeast affect the potential results? Surely the amount being insured and reinsured has also fallen – IE a hurricane that does the same damage this year as one two years ago will cost less as the replacement cost for  property would be lower.

 

So the same reinsurance price for covering less costs is a good thing – isn’t it?

 

I’m not sure how that impacts forecasts for reinsurance results – I would have thought it would be an improvement in results as the potential payouts could be smaller = or it would take a more damaging event to trigger reinsurance payouts.

 

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I'm not sure that I understand why the market values for properties matters.  My way of thinking about this is that if your windows are blown out from a hurricane, it costs about the same to fix the damage now as it did two years ago.  If your roof gets torn off, it costs about the same to fix as two years ago.  And, if your house is a complete write-off and it needs to be rebuilt from the foundation up, construction costs are about the same as two years ago (ok, maybe a shade lower).  The only situation where the replacement cost would matter is if you had a policy that allowed your insurance company to purchase an alternate property for you instead of fixing yours.  But my insurance contract (not in Florida!) says they'll fix my house up to $XXXXXX.

 

SJ

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Good point about the replacement costs – although I think it would be cheaper – if only due to cheaper labor!!

How about the number of foreclosed properties in a hurricane area.. if they are not insured anymore – or a houseowner or bank who does not insure the property.

 

If cost of the amount of insured property has decreased by 20% and the reinsurance market has decreased by 10% then the true capacity has increased? Additionally if this is true and rates have stayed the same then the reinsurance market is getting less risk for the same amount of premium..

 

Maybe I should keep my thinking out loud off the internet :d

 

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Your talking a specific niche of insurance which is gulf energy production.  FFH, via Lombard (I think could have been Federated), got slaughtered in this business, and exited it 100% after KRW.  Now I dont know specifically about ORH.  I would think they will keep their exposure to this area low, no matter the price.  The primary reason FFH writes insurance at all is for the float.  Since they have loads of investment money I would think they will stay very selective. 

 

On the other topic:  Part of the NOAA's mandate is to do medium term forecasting, despite the inherent lack of precision and accuracy with this art.  They are probably substantially better at forecasting hurricane seasons than economists or investors are at forecasting markets.  Remember that they are forecasting that the occurrence of storms will be about average for this point in cycle.  This is completely  unrelated to where these storms may hit, or how much damage they can cause.  A tropical storm hitting the Fla panhandle, can do vastly more damage than a Category 3 hitting Houston. 

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Stubble Jumper is correct, the property values insured are typically replacement cost, not market value. The replacement cost is usually inching up year on year although the down economy may help a bit on this score. In the face of a major cat replacement costs can spike due to scarcity of raw materials and labor as so many properties need to be reconstructed at once.

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