Reinsurance broker Benfield Group expects this year?s natural catastrophe losses will ?halt the decline in catastrophe pricing with upward pressure returning in loss affected areas?.

In its report on , Benfield notes that between 1850-2003, 2004 and 1886 were the only years when there were more than three landfalls in one US federal state. Typhoons also hit record numbers this year with nine making landfall in the North West Pacific compared with an annual average of 2.6.

The report notes that insured losses generated by each of this year?s four Atlantic hurricanes were not of the same magnitude as Hurricane Andrew in 1992, but their cumulative loss, estimated at USD$25 billion, exceeds Hurricane Andrew and is surpassed only by the cost of the terrorist attacks of 9/11.

The report runs down losses to insurers in the USA, London, Europe and Bermuda, the latter of which it says sustained ?significant losses? with the specialist property catastrophe underwriters unsurprisingly hardest hit.

Benfield noted that figures released in October on the combined third quarter storm losses showed that property catastrophe specialist PXRE, RenaissanceRe and Monpelier Re have the highest exposure of capital to the losses amongst Bermuda insurers of 15 percent, 15 percent and 12 percent.

The report said however: ?The relatively high exposures of Platinum and Quanta are noteworthy as these companies are multi-line resinruers with substantial casualty exposures, which would be expected to partially balance the storm losses as can be seen with XL Capital, PartnerRe and MaxRe.?

Benfield group says that Hurricanes Charley, Frances, Ivan and Jeanne will likely impact modelled loss scenarios used by insurers and reinsurers in the wake of Hurricane Andrew that focused on severity rather than frequency.

The report said: ?The abnormal sequence of four successive hurricanes and the unique nature of Charley is likely to encourage users to review a wider range of scenarios and the data from the unusual concentration of events in 2004 will affect model results.?

The Benfield report said that loss estimates produced by commercial modelling agencies during the four hurricane event scenario are ?wide ranging, reflecting the difficulty inherent in predicting the development of fast moving phenomena?.

?Actual losses diverged from predicted loss scenarios in several specific areas,? the report said. ?Most models focus on wind losses but the four hurricanes generated substantial rain and flood damage. Business interruption losses are notoriously difficult to model and these were also a significant element of the hurricane losses, particularly with regard to the impact on the energy industry. Finally, the overlapping tracks of the hurricanes and the difficulty in assigning and assessing losses from four proximate events have added to post-event uncertainty.?

Benfield says in its report that because the Florida Commission on Hurricane Loss Projection Methodology insists that models incorporate the latest data from the historical hurricane record, inclusion of this year?s storms are expected to affect model results in a number of ways.

The report said: ?There were four hurricanes causing loss in Florida in a single year ? the first time that has happened. Hurricane Charley was one of only five Category 4 storms that have made landfall in Florida since 1900. Charley was also unique for its narrow radius of maximum winds. Hurricane Charley, then, suggests that strong storms are more frequent than was previously thought, but at the same time they might not necessarily cause as much damage as one might expect. Other improvements which are likely to be made using the data from these four storms include adjustment to wind damage functions, assessment of the effectiveness of newer construction techniques and loss mitigation features to prevent loss, recalibration of overall insured losses to incorporate non-wind damage such as falling trees, and review of the accuracy of demand surge functions.?

Companies are still assessing their losses so it is too early to draw definitive conclusions for pricing, but the Benfield report says that because cumulative natural catastrophe losses for 2004 are already at the top of the historic range this is likely to halt the decline in catastrophe pricing with upward pressure returning in loss affected areas.

?Loss estimates remain at a preliminary stage and it is too early to forecast the full impact of these losses on January 1 renewals,? the report said. ?Reinsurer windstorm loss announcements have generally been accompanied by varying degrees of optimism about the outlook for reinsurance catastrophe rates. The losses have been regarded as an enforcer of market discipline - a quality that some had begun to question.?

In its outlook, Benfield says that even for those cedants unaffected by the hurricanes, the spate of losses is likely to encourage a

review of exposures which will lead to an increased demand for reinsurance.

?Those affected by the hurricanes will have suffered from multiple net retained losses. Loss frequency of this nature has an immediate and direct influence on results compared with the longer term impact of a single major vertical loss involving one retention. Attachment points of reinsurance contracts are likely to be the focus of particular attention, given the relatively low level but repeat nature of the 2004 hurricane losses, and deductible levels of excess of loss contracts are likely to be reassessed,? the report said.

Despite the apparent shortcomings of the model-driven approach revealed by the 2004 event scenario the Benfield Group expects that the recent trend towards increased reliance on modelling in catastrophe reinsurance buying will continue.