Advent, the specialist Lloyd’s insurer, has reported updated loss estimates for Hurricane Ike.
Advent has increased its estimated losses, net of reinsurance recoveries and reinstatement premiums, for Hurricane Ike from £15 million before tax, as reported in its third quarter results, to a current estimate of £42 million before tax.
The increase primarily results from Syndicate 780’s offshore energy account with an increase in estimated net losses of £22 million as a result of new information from clients reporting higher than expected losses (largely due to sub sea physical damage) leading to the exhaustion of its reinsurance protection. A new protocol for reporting energy losses require that loss adjusters’ reports are received more quickly than for the 2005 Hurricanes Katrina and Rita. However, the acceleration in reporting by loss adjusters has resulted in a higher degree of uncertainty as to the estimated ultimate loss cost. For losses where adjusters’ reports have been received, loss adjusters have generally reported a wide range of loss estimates with the lead underwriters on the policies recording at or near the top end of the loss estimate range. Advent, as a following underwriter, has included these losses in its updated loss estimate. Any further development in the offshore energy losses will be net to the Company.
The Company is extremely disappointed by the performance of its Energy account leading to this significantly higher Hurricane Ike loss estimate. As other participants in the energy market have noted, Hurricane Ike has proved to be far more destructive to offshore energy installations than original estimates had indicated, with sub sea damage representing approximately 60% of incurred losses to date.
Management has taken action in its 2009 business plan to prevent recurrence of this unacceptable performance by ceasing to write any Gulf of Mexico offshore energy business which has windstorm exposure. We believe that decisive action needs to take place in the energy market, and specifically to Gulf of Mexico windstorm exposures, in terms of coverage and policy wording, not simply increasing rates. Until such time that we see clear evidence that this is taking place, and not just on a short term basis, we will not expose the Company to these risks.
Advent Re has been notified of partial losses on two policies resulting in an estimated loss of £3.5 million from Hurricane Ike on gross written premium of £7.6 million for 2008.
The Company expects that, while the increased 2008 Hurricane Loss estimate will be partially offset by other underwriting profits and the release of earned catastrophe margin for the fourth quarter, it will incur a loss for the year.
Other than the Energy account, the loss development for the Treaty reinsurance and Property Insurance accounts have been contained, as expected, within their reinsurance programmes leading only to additional reinstatement premiums payable. Management is satisfied with the performance of these accounts in light of the significant catastrophes and high frequency of single risk property losses occurring during 2008. Swiss Re Sigma estimates that insured losses from 2008 catastrophes will be in excess of US$50 billion in 2008, the second worst year ever.