Property/casualty insurers, already hit with $3 billion in catastrophe losses in the second quarter, were spared the wrath of Hurricane Luis, which shifted away from the Caribbean early Wednesday.
Had a direct hit occurred, Luis, a Category 4 hurricane with winds gusting up to 175 miles per hour when it passed over Antigua, would have created an estimated $1.5 billion to $2 billion in insured losses, according to an analysis by Risk Management Solutions Inc., of Menlo Park, Calif.The figure is more than twice the loss caused by Hurricane Hugo, which grazed the northeast corner of the island in 1989. Hugo later devastated South Carolina, creating $4.2 billion in insured losses, becoming the most costly hurricane ever until Hurricane Andrew in 1992.
The storm turned northward early Wednesday, easing the threat to Puerto Rico and the U.S. Virgin Islands after devastating Antigua and Barbuda.
''This near miss is a reality check for the island," which has not seen a direct hurricane strike since Hurricane Betsy, a Category 1 storm, passed within 20 miles of downtown San Juan in 1956, said RMS spokeswoman Tracy Guzeman.
Puerto Rico's population has more than tripled during the past 75 years, and the rapid industrialization of the island has resulted in a considerable increase in exposure to natural disasters such as earthquakes and hurricanes, she said.
Luis is the most powerful hurricane of what the National Weather Service said is the busiest hurricane season in 59 years. But other, less serious storms have also struck this year, many producing hail and heavy rains that have hurt insurer earnings.
One of the worst was a May storm that pounded Texas and Louisiana in May, which caused $360 million in damage, according to Property Claim Services of Rahway, N.J.
That and several other storms pushed the industry's catastrophic losses to $3 billion, according to a report released Tuesday by the Insurance Services Office Inc. and the National Association of Independent Insurers of 96 percent of the property/casualty industry.
However, that loss was balanced by increases in investment income and realized capital gains to give the industry "a modest 4.7 percent gain" in the second quarter over a year earlier, according to the report released Tuesday.
Second-quarter net income rose slightly in the quarter, to $3.8 billion
from $3.6 billion in the year-earlier period. However, that is lower than the $5.3 billion in net income P/C insurers realized in the first quarter of this year, said Sean Mooney, senior vice president and economist for the Insurance Information Institute in New York.
Insurers received $1.8 billion in realized capital gains, up from $400 million in 1994, as well as investment income of $9.1 billion, up from $8.4 billion, due to higher income from stock dividends or bond interest, Mr. Mooney said. A strong stock market in the quarter encouraged companies to sell stocks for a gain.
''Some companies probably needed to liquidate assets to pay for catastrophe losses and hence showed a gain on selling these assets," he said.
The combined ratio, which measures the percentage of premium spent on claims and expenses, jumped, to 108.8 percent from 106.4 percent.
For the first half, net income grew, to $9.1 billion from $2.4 billion reported last year. The 1994 results were affected by fallout from the January earthquake in Northridge, Calif.
The six-month combined ratio declined, to 106.3 percent from 111.2 percent for the same period last year.
First-half net investment income rose, to $17.8 billion from $16.4 billion in 1994. Realized investment gains also increased, to $20.4 billion from $17.7 billion in 1994.