Insurers Insist They Are Unruffled By Last Year's String of Calamities

But the industry supports a federal proposal that offers a safety net

HURRICANES, floods, earthquakes, and fires: As insurers total up the cost of these natural disasters, some analysts suggest that the industry itself may face another disaster - a shortage of capital.

The recent surge of disaster claims also could prove more of a trend than insurance companies are banking on, according to Weiss Research Inc. in West Palm Beach, Fla.

``Even if you exclude Hurricane Andrew, the insured losses from natural disasters in the past three years have been far greater than in previous decades,'' says Martin Weiss, president of Weiss Research, which rates the financial strength of insurance companies.

``Too many insurance companies are basing their risk calculations on the assumption that losses will return to more normal levels. They're not ready for the possibility that it might be a real trend,'' he says.

Gene Grabowski of the American Council of Life Insurers concedes that, ``It's been difficult with all the natural disasters, no doubt about it.'' But Weiss is overestimating, he says.

Property and casualty insurers are ``very well capitalized,'' says Carolyn Gorman of the Insurance Information Institute, which is funded by the property and casualty insurance industry. ``There are operating reserves that could handle most anything that comes along.''

While some in the insurance industry consider Weiss an alarmist, others say his independent ratings may paint a truer picture of the industry.

``If we are a little overly conservative by some people's viewpoint, that's OK,'' says Sue Ann Bailey, a Weiss spokeswoman. ``They're [the industry] counting too much on income from interest.'' Total claims on the insurance industry have exceeded total premiums in 18 of the past 20 years, Weiss Research notes. ``If you have more money going out than going in ... that's not good business,'' Ms. Bailey says.

THE ``worst year on record'' for natural disasters was 1992, says Rhonda Ruch of A. M. Best in Oldwick, N.J., which also rates insurance companies. Nonetheless, the insurance industry's surplus (assets versus liabilities) increased 2.7 percent. The insurance industry is well funded, she says, and only a quick succession of natural disasters would be cause for concern. The Los Angeles earthquake is ``not going to impair any of the larger companies.''

``You have to distinguish between ... routine losses and a catastrophic event'' when discussing a potential inability to pay claims, says Jack Weber, executive director of the Natural Disaster Coalition.

Despite these assurances, the industry is moving to avoid the embarrassing necessity of a government bailout at the cost of taxpayers should unprecedented natural disasters strike. A worst-case disaster could cause as much as $80 billion in insured losses, more than state governments or insurers could handle, the Natural Disaster Coalition says.

Legislation now before Congress is designed to provide insurers with a backup system in case of a bad year. The 1993 Natural Disaster Protection Act, funded by the insurance industry itself, would provide a federal ``reinsurance backdrop'' and allow insurers to better manage higher risks in disaster-prone regions.

``There is a potential for a major earthquake that could cause enormous shock waves throughout the industry and the economy,'' says Jerry Parsons, spokesman for State Farm Insurance in Bloomington, Ill. ``We're behind that legislation.''

Under this proposal, insurers would contribute more than $1 billion a year to a tax-free fund. After claims surpass $25 billion, insurers could tap into the fund. Until it is fully funded, insurers could borrow directly from the government or with government backing, Mr. Weber says.

But the frequency and seriousness of recent natural disasters, combined with underwriting losses and low interest rates, may lead to changes in the industry, ``even if it means raising rates,'' Bailey says. This would be preferable to pulling in the government to reinsure, she says.

But Weber says ``the issue is not rates.'' Had Hurricane Andrew - a $16 billion catastrophe - hit a larger metropolitan area, he argues, higher rates would not have covered the losses.