Munich Re boosts offshore oil rig premiums by 400%

Reinsurers are typically able to use such large catastrophes as a trigger to push up premiums.

Munich Re said the most dramatic premium increases had been in offshore energy installations, but added that future policy renewals would likely see hikes of up to 50 percent in US property cover and smaller increases in Europe.

The hurricanes will probably lead reinsurers to push up catastrophe premium rates by an average of 20 percent to 30 percent next year, Kepler Equities analyst Rene Locher said. Hurricanes Rita and Wilma may cost the insurance industry $22 billion more, according to Risk Management Solutions, which uses computer models to estimate damages. ``The good news going forward is that the crisis has enabled them to think about raising prices,’’ said Gary Dugan, chief investment officer at Barclays Investment Services in London, which manages about $98 billion. ``If the whole industry is going to benefit from higher rates, Munich Re in particular is going to be able to enjoy it.’’

Reinsurers take on a portion of the risks insurers assume for clients, in exchange for premium payments. This year’s Atlantic hurricane season spawned a record 23 named tropical storms, forcing reinsurers including Swiss Re to cut profit forecasts.

Aon, the world’s second largest insurance broker, also said that 2005 had been the worst year on record for the energy insurance industry — but added the market was capable of weathering the storm. Aon estimated Katrina and Rita would cost US energy insurers from $3,5bn-$5bn.

"Our estimate of global premium income for the energy sector is in the order of $3.5bn for this class, so simple arithmetic clearly demonstrates a significant net loss to underwriters," said Magne Seljeflot, chairman of Aon’’s natural resources global practice. "However, the energy insurance market, like the energy industry itself, is accustomed to this boom or bust cycle."

Munich Re said 3bn of revenues from its 27bn investment portfolio had more than offset the freak hurricane season. For the three months to the end of September, Munich Re reported net profits of 513m, up by a third on the same period last year.

Munich Re also told analysts that from next year it would target a risk-adjusted return on capital, rather than a straight ROE, in order to stop an estimated 8bn of excess capital dragging down its return calculations.