AIR Estimates Irene Insured Caribbean Losses at $500 Million to $1.1 Billion

August 29, 2011

AIR Worldwide has estimated that insured losses in the Caribbean from Hurricane Irene will be between $500 million and $1.1 billion. AIR said it “expects the Bahamas will account for more than 60 percent of the insured loss—between $300 million and $700 million.”

The total estimate “includes wind and precipitation-induced flood damage to insured onshore residential, commercial and industrial properties (and their contents), automobiles, and business interruption losses in the Bahamas, Puerto Rico, Dominican Republic, Turks and Caicos, and other Caribbean territories,” AIR explained.

The bulletin also noted that Irene’s passage through the northwestern Bahamas has “caused significant wind and flood damage to Abaco, Cat, and Eleuthera islands. There are reports of downed trees and significant roof damage throughout the region, but with severe disruptions to telecommunications and power networks, damage reports have been sparse thus far. Up to one foot of total rainfall accumulation was expected in parts of the country, and winds exceeding 130 mph [208 km/h] have been recorded.

AIR Worldwide scientist Scott Stransky noted that the hurricane had fortunately “tracked east of densely populated New Providence Island and Grand Bahama Island, subjecting them to only tropical storm force winds.”

Officials on the islands report limited impact on popular tourist resorts, and said they expect them to resume operations soon. In the capital city of Nassau, located on New Providence Island and home to nearly a quarter million people, trees were downed, streets were flooded, and debris was strewn throughout. The Straw Market in downtown Nassau, a popular tourist shopping center located in a metal-framed canvas tent, was destroyed.

According to AIR’s analysis, the Bahamas were “among the first Caribbean territories to adopt building codes, which are very stringent and highly enforced. This will help limit severe structural damage to a certain extent.

“Houses in the Bahamas are typically constructed using concrete block or poured concrete, although unreinforced masonry and timber construction are also used. Most residential dwellings are single story, while commercial buildings can be mid or high rise.”

Stransky added that at “Category 3 wind speeds, non-engineered structures can experience significant damage to the building envelope and the openings and can sustain structural damage if not properly anchored. Engineered structures can also sustain significant damage to cladding and openings, if not properly protected. Additionally, Category 3 winds are expected to cause widespread damage to signage, trees, and electricity poles. Business interruption losses may also be significant from both direct physical damage to hotels and resorts, as well as damage to supporting utilities.”

AIR also noted that in 1999, “Hurricane Floyd battered the northwestern Bahamas with Category 3/Category 4 winds, causing widespread damage and disruption to several islands. Reported insured losses, trended to 2009 dollars, were approximately $400 million in the Bahamas. Like Irene, Hurricane Floyd was a very large storm, with tropical storm force winds extending some 580 miles [928 kms] across. In contrast to Hurricane Irene, however, Floyd passed to the east of the islands, meaning that its strongest winds on the right side of the storm remained over water.”

Stransky pointed out that, “because Irene tracked west of several islands—including Abaco Island, which contains the third highest insured property value after New Providence and Grand Bahama—it is likely that losses in the Bahamas from Hurricane Irene will be higher than those from Hurricane Floyd. Irene’s large size meant that almost all of the Bahamas was subject to strong winds for more than a day—a factor taken into consideration when modeling losses.”

Earlier this week, Irene passed through Puerto Rico at tropical storm/Category 1 strength, causing extensive flooding and triggering dozens of landslides. Later, the storm passed sufficiently to north of the Dominican Republic to keep wind damage minimal, but excessive precipitation caused several rivers to burst their banks, causing severe flooding and sweeping away many poorly-constructed houses.

AIR also explained that its insured loss estimates for the Caribbean reflect the following:
• Insured physical damage to property (residential, commercial, industrial, auto), both structures and their contents;
• Additional living expenses (ALE) for residential claims;
• For residential lines in the U.S. territories of Puerto Rico and the U.S. Virgin Islands, estimates reflect AIR’s view that insurers will ultimately pay 10 percent of modeled precipitation induced flooding damage under wind policies; in all other territories, 100 percent of flood losses are assumed to be covered;
• For commercial lines, insured physical damage to structures and contents, and business interruption directly caused by precipitation induced flooding, assuming a 10 percent insurance penetration for commercial flood policies in the US territories. In all other territories, 100 percent of flood losses are assumed to be covered;
• Business interruption losses include direct and indirect losses for insured risks that experience physical loss;
• Loss from storm surge is implicitly accounted for in the wind damage functions.

Source: AIR Worldwide

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