Supporting financial stability

Hurricane Katrina, which struck the Gulf Coast of the United States in late August 2005 and decimated the city of New Orleans, is likely to be the most expensive natural catastrophe ever. Insured losses are estimated to be as high as $60bn. This is more than double the previous record loss, incurred following Hurricane Andrew in 1992. Because of the size and nature of the catastrophe, the reinsurance industry is likely to bear a larger proportion, as much as 50%, of total insured losses arising from Katrina than of those inflicted by earlier disasters. In the Bank of International Settlements’ Quarterly Review of International Banking and Financial Market Developments published earlier this week, Ingo Fender and Philip Wooldridge explain how reinsurers helped to support the stability of the financial system.