Katrina may cost insurers record $25 billion

By Jonathan Stempel

NEW YORK (Reuters) – Hurricane Katrina may be the most
expensive hurricane ever to hit the United States, costing
insurers as much as $25 billion, a storm modeler said on
Monday.

Shares of many insurers and reinsurers, which provide
insurance for insurers, fell, although analysts say regulators
often let insurers charge higher premiums after bad weather
results in big payouts.

“We expect the bulk of damage to be wind-related, but there
is significant flood risk to commercial insurers,” said Thomas
Larsen, senior vice president at the modeler, Eqecat Inc. of
Oakland, California.

Katrina made landfall this morning about 65 miles
south-southeast (105 kph) of New Orleans as a Category 4 storm
with winds of 140 miles per hour (225 kph), the National
Hurricane Center said.

In morning trading, Allstate Corp. fell $1.10, or 1.9
percent, to $56.85; Hartford Financial Services Group Inc. fell
81 cents, or 1.1 percent, to $73.90, and St. Paul Travelers
Cos. fell 62 cents, or 1.4 percent, to $44.12.

In Europe, Munich Re shares fell 0.7 percent and Swiss Re
fell 0.6 percent.

HOMEOWNERS

On Sunday, with Katrina bearing down on New Orleans, Eqecat
said losses could top $30 billion, but then the storm weakened
slightly and veered east. “The track shifted east 25 miles,
which relieved some pressure on New Orleans because it put the
city on the weak side of the storm,” said Larsen.

Eqecat now estimates a maximum $25 billion payout, which
would make Katrina more expensive than Hurricane Andrew, the
costliest U.S. hurricane ever, according to the Insurance
Information Institute.

It often takes days or weeks after a major storm to assess
damage, and several insurers on Monday said it was too soon to
estimate losses. Katrina may have generated $2 billion in
claims when it tore through Florida on Friday, analysts said.

Bob Hartwig, the insurance group’s chief economist, said
payouts to homeowners may top those for business interruption,
“given that the eye did not go over New Orleans.”

But Ray Stone, vice president of catastrophe operations at
St. Paul, said flooding in the city is a big worry. St. Paul
does not expect to be able to assess losses before Wednesday.

Andrew resulted in about $20.9 billion of claims, after
adjustment for inflation, when it plowed through southern
Florida in 1992. Insurers last year paid out $22.8 billion for
four Florida hurricanes, the insurance institute said.

Andrew came ashore as a Category 5 storm, the most serious
on the Saffir-Simpson scale. Katrina was also a Category 5
storm before it came ashore. Andrew caused about $26.5 billion
of overall damage, before inflation, U.S. government data show.

LOSS ESTIMATES

State Farm Mutual Automobile Insurance Co. is the largest
insurer of homes in Louisiana and neighboring Mississippi, the
Insurance Information Institute said.

Allstate, American International Group Inc., the Louisiana
Farm Bureau Mutual Insurance Co. and St. Paul are the next
largest in Louisiana, while Mississippi Farm Bureau Mutual
Insurance Co. and Allstate follow in Mississippi.

According to Risk Management Solutions, a Newark,
California-based risk forecaster, insured property in New
Orleans and the seven surrounding parishes totals more than
$110 billion.

Allstate spokesman Bill Mellander said the largest publicly
traded U.S. auto and home insurer is deploying claims adjusters
near where it expects the worst damage.

Losses from the four Florida hurricanes nearly wiped out
Allstate’s third-quarter earnings last year.

Hartford claims adjusters are preparing to move into
affected areas and may begin assessing damage within a week,
company spokeswoman Victoria Gallant said.

Fraser Engerman, a State Farm spokesman, said, “Once we get
clearance from authorities, we’ll begin assessing damage. We
know it’s going to be bad.”

AIG did not immediately return a call seeking comment.