Hurricane Gustav could trigger insurance claims of up to $10 billion, according to early computer-modeled estimates of damage from the storm, but at least one analyst thinks the final tab could be lower.
Gustav, which made landfall southwest of New Orleans on Monday, was much less powerful when it struck than earlier feared. It also skirted the city, which sustained heavy damage three years ago from Hurricane Katrina.
“While a major weather-event, the storm did not have the destructive impact widely forecasted,” said Citigroup analyst Joshua Shanker, in a research note.
“Estimates are largely unavailable or premature, in our opinion … we would not be surprised to learn that losses are even lower, as these largely related to modeled projections (which have come down from a prior projection of $33 billion) rather than analysis of storm damage,” Shanker added.
EQECAT Inc, which helps insurers model catastrophe risk, said on Monday it estimated Gustav’s insured losses at $6 billion to $10 billion. AIR Worldwide Corp., another provider of technology to model disaster risk, estimated the storm had caused up to $4.5 billion in losses on land and up to another $4.4 billion to offshore oil and gas installations.
Risk Management Solutions (RMS), the third major modeler of catastrophe risk, put insured losses at $4 billion to $10 billion — $3 billion to $7 billion of which is for commercial and residential claims, excluding coverage from a government flood insurance program, and the rest from damage or production outages for the oil and gas industry in the Gulf.
Gustav, a dangerous Category 4 hurricane a few days ago, hit shore near Cocodrie, Louisiana, about 70 miles (115 km) southwest of New Orleans as a Category 2 storm on the five-step Saffir-Simpson scale of hurricane intensity, one step below Katrina’s strength when it made landfall.
Shanker said that assuming insured losses of around $5 billion, the losses would weigh more heavily on insurers than reinsurers, who provide back-up coverage to insurers. The latter usually have to pay out after losses for an event exceed $10 billion.
He added that it was premature to assess Gustav’s impact on third-quarter results until more data was in hand.
Lehman, in another research note, said it did not expect the insured losses from Gustav to exceed “more than several quarters’ earnings” and were not expected to be “large enough to require significant additional capital.”
Many insurers reduced the amount of business they wrote in hurricane-prone areas such as the Gulf coast and Florida after record losses from Hurricane Katrina and other powerful storms in 2004 and 2005.
Hurricane Katrina, which hit three years ago last Friday, is the most costly storm on record, leaving in its wake damage that cost more than $80 billion, more than half of which was covered by private insurers.
(Reporting by Lilla Zuill; Editing by Steve Orlofsky)
Was this article valuable?
Here are more articles you may enjoy.