Katrina Drives up World Cat ROL, Capacity Holds Strong

As we come to Monte Carlo for discussions on the upcoming renewal season, the industry is undergoing a fundamental shift in its perception of property risk. The year of Katrina pummelled the industry with USD83 billion in losses worldwide, 70 percent higher than the record losses of 2004. There is a concern that rising sea surface temperatures in the North Atlantic are driving a cycle of increased storm activity that could last 20 to 30 years, even as populations and property values are increasing in exposed coastal areas.

Modeling companies and rating agencies therefore are raising their criteria, with a variable impact on global pricing. RMS has demoted its 100-year baseline for calculating hurricane frequencies in the North Atlantic and adopted for its base model a narrower, five-year perspective, thereby pushing up PML estimates for storm-exposed areas by up to 40 percent. A.M. Best and Standard & Poor's have introduced...