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After Irene, insurance premiums heading up Another lucrative year is expected in industry

The $7 billion in estimated losses from Hurricane Irene compound the vast damage caused by weather in the United States this year. Yet despite billions they've paid out for floods, tornadoes and earthquakes, big insurance companies can expect another profitable year.

And their customers can expect higher premiums.

Stocks of major insurers rose Monday as investors celebrated Irene's less-than-expected damage. The storm didn't even cause most analysts to adjust their profit estimates for insurers.

In part, that's because insurance companies have been raising premiums this year, especially for customers in high-risk areas. Homeowner and auto policies cost 5 to 10 percent more than they did a year ago, according to research by Gregory W. Locraft, an industry analyst with Morgan Stanley.

The damage from Irene and other disasters means that property insurance premiums will likely rise across the board into 2012, Locraft said.

"Irene is just another log on the fire," he said.

The storm seems unlikely to hurt the overall U.S. economy. Analysts agree that damage from Irene will likely run less than $10 billion -- a tiny fraction of the $14 trillion U.S. economy.

Reconstruction might even strengthen areas hit hard by Irene, analysts said. Rebuilding homes, repairing cars and fixing roads and bridges should help boost those local economies late this year and early next year, they said.

Irene is the 10th U.S. weather disaster this year to have caused more than $1 billion damage, the National Weather Service says -- the most for any year on record dating back 30 years. And 2011 is hardly over.

Excluding Irene, this year's natural catastrophes had caused about $18 billion in damage to insured properties, according to the Insurance Information Institute. Irene will add $3 billion to $5 billion, said Robert P. Hartwig, an economist and president of the group.

In a normal year, industry losses typically total $15 billion to $20 billion, said Robert E. Litan, an industry expert and senior fellow at the Brookings Institution, a Washington think tank. And the peak hurricane season is only about half over.

Another reason that insurers are expected to raise premiums is that reinsurance companies are set to boost their rates Jan 1. Reinsurance is coverage that insurance companies buy to cover their potential losses from catastrophes.

This year, reinsurance hasn't offset insurance companies' costs. Reinsurance policies don't kick in until a single disaster's costs to insurers top $10 billion. When the billions are spread over numerous disasters, as has happened this year, insurers -- and their customers -- must absorb the costs.

That won't stop reinsurance companies from hiking their rates -- costs that will be passed on to homeowners.

Insurance companies that cover major disasters are set up to absorb big costs. They manage investment portfolios that produce relatively stable income. Most of their policies never result in claims. In those cases, the premiums are pure profit.

And when a string of catastrophes hits, as in 2011, they can raise the premiums that they charge homeowners.

The national economy, though, will scarcely feel the impact of Irene.

"Without minimizing the pain and suffering for the people affected, from an economic perspective, this is a fairly small event," said Nariman Behravesh, chief economist at IHS.

The economic stimulus from the storm will be about double the cost of the damage inflicted, Litan said. Yet the benefit will be small compared with the size of the national economy, in light of the relatively minor damage caused by Irene. Adjustments to growth forecasts at IHS and Moody's Analytics because of Irene are unlikely, according to economists from those firms.

Rebuilding will be concentrated in relatively small areas and in industries such as construction. Litan suggested that it could spark a "short-term boom for some construction workers and contractors who have been out of work."

That's most likely in states such as Vermont and New Hampshire. Their economies are small enough to benefit from disaster-related money. New York and New Jersey, by contrast, are too economically vast to benefit much, Litan said.

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