Katrina to hit all classes

While it is still too early to analyse in detail the effect of Hurricane Katrina on the marine insurance and reinsurance markets, it is already clear that the storm will exceed the $3bn (£1.65bn) incurred by marine markets from Hurricane Ivan last year.

The speculation stemming from numerous conversations at the Monte Carlo Rendezvous was that, while some reinsurers may not survive the financial impact of Katrina, those that are left will seek to increase pricing and tighten conditions in virtually every sector.

Unlike other historic losses, Katrina is likely to hit all classes of business written and the marine market will be no exception, with the offshore energy loss likely to be larger than Ivan and losses emanating from the hull, cargo and marine liability accounts may well be many multiples of historic natural-peril losses.

With post World Trade Center reinsurance prices already at their highest level since 1993, reinsurers are likely to seek to restructure many marine programmes, although it is unlikely that the marine market will adopt the risk and catastrophe methodology employed by their property treaty counterparts. It is more likely that reinsurers will seek to increase reinsurance premium in the sector, by a move away from whole account/limited general structures, towards a requirement for cedants to purchase account-specific protections or a series of mutually exclusive pillars, limited by a combination of geography and or peril. The latter would have the added attraction of introducing a miss factor for reinsurers.

Aside from this, reinsurers need to ensure that they differentiate those of their clients who, through underwriting judgement or scope, will produce either modest losses or no losses at all from this most recent catastrophe.

By the same virtue, buyers of marine and energy insurance should be prepared to pay more for the product as insurers' margins are diluted by rising reinsurance costs.

The potential dire consequences for the industry are brought into sharp focus as yet another fearsome storm powers through the warm waters of the gulf towards the Texan coast through the oilfields - this may indeed be the ultimate test for an already beleaguered industry.