January 19th, 2009

Ike Update: Revised Shareholders’ Funds Impact

Posted at 1:05 AM ET

David Flandro, Senior Vice President
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Ahead of the fourth quarter and full-year financial reporting season, a handful of companies have announced substantial upward loss estimate revisions related to Hurricane Ike. Marine losses, including off-shore energy installations, led to significant increases in loss estimates and reflect the complexity and difficulty of modeling exposure, as well as the subsequent investigation and assessment of claims. Guy Carpenter expects that other companies may report increased loss estimates for Hurricane Ike - whether in preemptive statements or in fourth quarter and full-year 2008 results.

Partner Re was the first reinsurer to report a significant increase in loss estimates for the hurricanes that hit in the 3rd quarter of 2008, reporting a 60 percent before-tax increase (but after reinstatement premiums) in its provision for Hurricane Ike - to USD305 million on December 1, 2008. New information from clients, reflecting larger losses than initial notifications, is the primary cause. The increases were mostly primarily concentrated in the marine line of the global (non-U.S.) specialty sub-segment and per risk treaties in the U.S. sub-segment, with a more modest increase in the catastrophe sub-segment.

IPC Holdings reported a 53 percent increase in its Hurricane Ike estimate from USD88 million to USD135 million on January 7, 2009. The company said that new client information or estimates were responsible, with losses concentrated on the assumed retrocession book (including direct and facultative) and the onshore energy book.

Advent Capital, the specialist Lloyd’s insurer, reported a 180 percent increase in its Hurricane Ike loss estimate from GBP15 million to GBP42 million on January 9, 2008. The increase came from the Advent’s Lloyd’s syndicate 780 offshore energy account. Clients reported larger than expected losses, especially from sub-sea physical damage on offshore energy installations where damage has been more severe than expected. Advent reported that its reinsurance protection against such losses was exhausted and that further increases in losses would be taken net.

Platinum Underwriters Holdings Ltd increased its loss estimate from Hurricane Ike by approximately 57 percent from USD105 million to approximately USD165 million, net of reinstatement premiums and tax benefit on January 14, 2009. The updated loss estimate from Hurricane Ike is based on additional information from Platinum’s clients, reflecting larger losses than initially estimated, industry loss estimates, portfolio modeling and historical development patterns. The increase in loss estimates results primarily from offshore marine, risk excess of loss and property catastrophe business.

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