Exactly three years ago, with Hurricane Katrina blowing into the Gulf of Mexico on course for New Orleans, this column warned that the storm damage likely to be wrought a hemisphere away would carry a heavy cost for Asian businesses.
Part of the reason was the effect on the oil price. As the Gulf's rigs and refineries shut down, the price of crude immediately spiked above US$70 a barrel, the high for 2005.
However, the main argument was about the expected impact on insurance premiums. With preliminary forecasts projecting that Katrina could cost insurance companies up to US$30 billion, the storm was already shaping up to be the most expensive catastrophe in history even before it made landfall on the US mainland.
At the time, this column argued that exposed US insurance companies had laid off a portion of their hurricane risk with global reinsurers such as Swiss Re and Munich Re. These global giants would absorb the hit, but ultimately would be forced to recoup some of the losses by raising the premiums they charged local insurance companies worldwide, including in Asia. These in turn would pass on the increase to businesses and individuals in Asia in the form of higher premiums for property and casualty coverage.
This suggestion was vehemently rejected by the reinsurers, with an executive at one company saying the column displayed a profound ignorance of how the reinsurance market works.
Three months later, with insured losses from the storm approaching US$50 billion, his company warned that insurance premiums across the world would see 'significant increases' the following year, largely because of Katrina (see chart below).