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Battened down for Bonnie
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August 26, 1998: 12:36 p.m. ET
Hurricane begins lashing coast, but insurers should weather the storm
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NEW YORK (CNNfn) - As Hurricane Bonnie moves erratically northward along the East Coast, the insurance industry is bracing itself for the storm, with an army of claims adjusters at the ready.
But those following the leading property-casualty insurers say the industry has learned a lesson from the past and has plenty of safety measures already in place.
"Nobody knows the dollar amount (of damages) until the storm hits again, but it's a class three storm, unlike (the devastating and costly) Hurricane Andrew, which was a class 4 storm," said Wasserstein Perella Securities analyst Myron M. Picoult. "If anyone thinks this is going to change the pricing dynamics (of policies to consumers), that is just not the case."
Hurrican Bonnie lashed the Atlantic coast early Wednesday with heavy rains and tropical storm-force winds. More than a half-million people were ordered to move inland by North and South Carolina officials.
Picoult acknowledged the industry's third-quarter results likely will take a beating as a result of expected heavy property damage claims.
"This will cut through (last year's claim pay-outs) like a hot knife through butter," he said. "This will beat up comparisons in the third quarter."
Over the years, property-casualty insurers have reduced their level of reinsurance, the insurance policies that cover commercial insurance companies in case of catastrophic events.
At the same time, however, they have upped their pool of statutory surplus funds, which now stands at $330 billion. The surplus is the total amount of money in the industry's coffers that ultimately backs up their written policies.
"There's plenty of room for these guys to absorb King Kong walking all over them," Picoult said. "That's at a historic high."
Bob Hartwig, an economist for the Insurance Information Institute, concurs.
Although the industry has no solid estimates yet for how high losses from Hurricane Bonnie could climb, he said, there is "no indication this will be anything like Hurricane Andrew, and no doubt losses will be much, much lower."
Insurance companies, he said, "always make contingencies for these catastrophes. We expect them. Adjusters are already prepared to move in once we can get in (to damaged areas)."
According to the institute, Hurricane Andrew, which hit in August 1992, caused the worst damage the industry has ever seen, costing insurance companies some $15.5 billion. Insurers lost $4.2 billion in Hurricane Hugo in 1989, the second-most costly hurricane.
Insurers, ill-prepared to cover the costly claims, were tapped dry during those years. The industry now is much better capitalized to handle a catastrophe.
In the first half of 1996, winter storms accounted for the bulk of the 23 catastrophes that caused $4.2 billion in damage. 
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