The reinsurance industry will be able to cope financially with claims from Hurricane Katrina, according to Jeff Radke, president and chief executive officer of Bermudian catastrophe reinsurer PXRe.

?What matters is, can you pay your bills? And I can?t think of anyone who isn?t likely to be able to,? he told Reactions.

He also believes that, because of the scale of the damage, the industry will settle claims quickly. ?I imagine there will be a market-based solution or compromise that involves several companies and a broader agreement, not case by case,? he says.

Because of its sophisticated use of risk models, the industry was reasonably well prepared for this event, he said. Some have criticised how long it is taking the industry to get a handle on loss estimates. But Radke points out that some of the industry-wide loss estimates have varied and changed because the risk modelling agencies have included different things in their estimates.

Initially the risk models did not factor in flood costs, for example. Risk Management Solutions, however, later increased its estimate to include flood losses, which it estimates will cost the industry between $15 billion and $25 billion. Neither Eqecat or Air Worldwide, leading risk modellers like RMS, have included flood losses in their estimates. ?It?s not that the firms? estimates are so different it?s that they are answering different questions,? Mr. Radke said.

?You?ve got to read the fine print. They never promised to model flooding. And I don?t think any of them purport to be useful for assessing flood damage in the US.? He also points out that the way companies use risk models can sometimes contribute to loss estimates being inaccurate. ?Storm surge is one of the things that you can turn on or off in the model, for example. If you misuse the model, you can get some very low numbers. Simply by turning off storm surge, in fact.?

But whatever loss estimate turns out to be correct, Mr. Radke said the industry should expect to be hit hard. ?Even if the lowest loss estimate is correct the impact on the reinsurance industry is going to be a material percentage of the industry?s capital,? he says.

PXRe has said it expects a $235 million after-tax loss from Hurricane Katrina.

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