Hurricane Dennis’ Insured Losses Estimated to Reach $2.5 Billion

July 10, 2005

AIR Worldwide estimates insured losses in the United States from Hurricane Dennis will be between $1 billion to $2.5 billion.

Although Dennis made landfall in the same region as Hurricane Ivan in 2004, insured losses from Dennis are expected to be significantly lower than Ivan’s, since Dennis differed from Ivan in four important aspects: intensity, size, speed and location.

While Dennis and Ivan were both Category 3 hurricanes, Ivan had sustained wind speeds of 130 mph versus 120 mph for Dennis. Hurricane Dennis was also a more compact storm. Ivan’s peak winds extended about 25 miles from the center, while Dennis’ peak winds extended only about 10 miles from the center, resulting in a much narrower swath of damage.

At landfall, Dennis’ forward velocity was approximately 21 mph versus 13 mph for Ivan. “Dennis’ relatively fast forward speed will also mean less damage to properties than occurred from Hurricane Ivan,” according to Dr. Atul Khanduri, manager of wind risk modeling for AIR Worldwide.

“Damage does not occur instantaneously, rather it accumulates over time from repeated battering. AIR’s hurricane model explicitly captures this phenomenon, which engineers call “fatigue failure.”

When prolonged winds occur over a very large geographic area, as in Hurricane Ivan, the number of claims can increase significantly. Losses for Dennis would have been higher had the storm moved at a slower pace.”

After 36 hours tracking parallel to Florida’s west coastline, Hurricane Dennis made landfall just east of Pensacola, Florida, an area with less property than the area impacted by Ivan.

High demand for repairs following Florida’s 2004 hurricanes drove repair costs up, adding significantly to insurers’ losses. “In an analysis of detailed claims data from the 2004 hurricane season, AIR found that the effect was magnified by the fact that the storms were clustered both in time and location,” said Dr. Khanduri. “AIR introduced enhancements to its catastrophe risk systems to enable insurers to apply a demand surge factor to their loss estimates on an aggregate basis to account for the increase in costs resulting from multiple storms in close proximity. Much of the damage from 2004 has not yet been repaired and will impact the ability of contractors to respond to Dennis. In this way the damage from 2004 will likely lead to increased repair costs for Dennis.”

AIR will be dispatching a post-disaster survey team to the Gulf coast and will have further feedback and analysis from the team later this week.

Topics Catastrophe Natural Disasters Profit Loss Florida Hurricane

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