Hurricane Katrina likely will be the largest insured loss from a single event since the terrorist attacks of Sept. 11, 2001 and the largest U.S. hurricane loss since Hurricane Andrew in 1992, Fitch Ratings said Monday.
What’s more, the magnitude of the loss from Katrina likely will be considerably greater than any of the individual losses from the four major land falling hurricanes in 2004. And, at the high end of the range of current estimates, Katrina would exceed the combined insured losses from the 2004 hurricane season and would represent the largest insured hurricane loss ever.
The insurance loss due to Katrina will be material to both the primary insurers located in the U.S. and to the reinsurance industry, much of which is domiciled outside of the U.S.
At this point, two major hurricane modeling firms have released preliminary estimates of the insured losses from Katrina. EQECAT estimates the insured loss to be in the range of $12 to $25 billion. Risk Management Solutions Inc. estimates the loss to be $10 to $25 billion.
‘Total losses – insured losses plus uninsured losses – are often double the insured loss and Fitch notes that flood losses are generally not covered by homeowners’ policies,’ said Donald Thorpe, senior director, Fitch Ratings. ‘The range of loss estimates is necessarily wide because this event is still ongoing. Fitch expects loss estimates to be refined once the areas affected are safe enough to physically inspect damage and when the National Weather Service publishes detailed information about the storm track, central pressure and wind speeds.’
These insurance losses are in addition to the damage caused by Katrina’s earlier land fall in Florida late last week that caused an estimated $600 million to $2 billion in insured losses. There is also the possibility that Katrina has caused significant damage to offshore oil drilling facilities in the Gulf of Mexico.
Fitch currently expects the spread of loss through the insurance industry to be different than the 2004 hurricane season, with reinsurers taking a greater proportion of the loss than in 2004. Fitch expects this to occur because the insured loss from Katrina will be from a single event, which means primary insurance companies will share losses with their reinsurers once losses meet their respective deductibles. This contrasts with 2004 when insured losses were the result of four hurricanes, which meant primary insurers had to pay four deductibles.
Due to the area affected, Katrina is not currently expected to trigger a loss to any of the catastrophe bonds rated by Fitch.
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