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Katrina may cost insurers record $26 billion

Posted on: Monday, 29 August 2005, 13:18 CDT

By Jonathan Stempel

NEW YORK (Reuters) - Hurricane Katrina may be the most expensive hurricane ever to hit the United States, costing insurers up to $26 billion, storm modelers said on Monday.

The storm may nevertheless prove less costly than some had feared because it weakened overnight and its eye veered slightly east of low-lying New Orleans, by far the most populous city in Katrina's path.

"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 one modeler, Eqecat Inc. of Oakland, California. "The track shifted east 25 miles, which relieved some pressure on New Orleans."

Air Worldwide Corp. of Boston estimated a $12 billion to $26 billion payout, just above Eqecat's $12 billion to $25 billion forecast. Risk Management Solutions Inc. of Newark, California estimated a $10 billion to $25 billion payout.

The higher estimates would make Katrina more costly than Hurricane Andrew, which resulted in $20.9 billion of claims, after adjusting for inflation, when it slammed into Florida in 1992, the Insurance Information Institute said.

Eqecat cut its forecast for Katrina from as high as $30 billion after the storm tracked east of New Orleans.

Katrina came ashore 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. Mississippi and Alabama were also battered.

Among insurers in afternoon trading, Allstate Corp. was off 88 cents to $57.07; Hartford Financial Services Group Inc. dropped 93 cents to $73.78, and St. Paul Travelers Cos. fell 32 cents to $44.42.

Among shares of reinsurers, which provide insurance to insurers, Munich Re dipped 0.5 percent and Swiss Re 0.4 percent in Europe.

HOMEOWNERS

While regulators often let insurers boost premiums after they make big payouts, Merrill Lynch & Co. analyst Jay Cohen in a report said that might not happen this time.

"Events that caused a shift in pricing in the past took insurers by surprise," he wrote. "Katrina does not appear to have such a surprising, unique nature to it."

It often takes days or weeks after a major storm to assess damage, and several insurers said it was too soon to estimate losses.

Katrina may have generated $2 billion in claims after tearing through Florida on Friday, analysts said. Insurers last year paid out $22.8 billion for four Florida hurricanes, the Insurance Information Institute said.

Bob Hartwig, the institute's chief economist, said payouts to homeowners may top those for business interruption, "given that the eye did not go over New Orleans."

Ray Stone, vice president of catastrophe operations at St. Paul, said: "A lot of people are breathing a little bit of a sigh of relief because it weakened slightly, and kept New Orleans on the weak side of the storm." St. Paul does not expect to be able to assess losses before Wednesday.

Andrew came ashore as a Category 5 storm, the most serious on the Saffir-Simpson scale. It caused about $26.5 billion of overall damage -- including damage not covered by insurance -- before inflation, U.S. government data show. Only three Category 5 storms have hit the United States.

"GOING TO BE BAD"

State Farm Mutual Automobile Insurance Co. is the largest insurer of homes in Louisiana and Mississippi. Spokesman Fraser Engerman said: "Once we get clearance from authorities, we'll begin assessing damage. We know it's going to be bad."

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.

Risk Management Solutions said insured property in New Orleans and 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 adjusters are preparing to enter affected areas and may begin assessing damage within a week, company spokeswoman Victoria Gallant said.

Source: REUTERS

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