Catastrophe Modelers Revise Expectations of Hurricane Losses

September 22, 2008

Extreme risk modeling firm, EQECAT Inc., and catastrophe risk experts, Risk Management Solutions (RMS), have revised their estimates of insured losses from Hurricane Ike, which hit Galveston, Texas, on Sept. 13.

EQECAT has narrowed its estimated onshore insured losses to a range of $8 billion to $12 billion, from an initial estimated range of $8 billion to $18 billion at the storm’s landfall. The company said the revised estimates are based upon reconnaissance-team reports of damage caused by Hurricane Ike, and additional post-landfall data regarding the storm’s characteristics.

Total economic loss to offshore oil and gas facilities from Hurricane Ike is estimated to be in the range of $4 billion to $6 billion, with property damage making up about $1.5 billion to $2 billion, and lost production accounting for about $2.5 billion to $4 billion, EQECAT reported.

As of Sept. 18, 2008, the United States Minerals Management Service reported that 49 producing platforms and 3 jack-up drilling rigs were destroyed by Hurricane Ike. Several other platforms and drilling rigs sustained moderate damage, EQECAT said.

RMS refined its estimate for U.S. onshore and offshore insured losses from Hurricane Ike to $7 to $12 billion from its original estimate of $6 to $16 billion. This estimate includes both onshore and offshore losses resulting from strong winds and storm surge but does not include losses covered under flood policies issued by the National Flood Insurance Program, or loss of oil and gas production due to pipeline supply interruptions.

The revised estimate is based on analysis of damage reports, verified wind speed and tidal gauge observations, and on-site assessment from multiple reconnaissance teams.

One of the remaining uncertainties will be how much of the onshore loss will be paid out under flood or wind policies, particularly for the destroyed coastal communities of Bolivar, which were subject to some of Ike’s strongest winds and storm surge, RMS noted.

RMS also revised its initial industry loss estimate for Hurricane Gustav to between $2.5 billion to $4.5 billon, covering onshore and offshore exposure. This new estimate is based on further analyses of the wind field and damage surveys from our reconnaissance teams. The main uncertainty surrounding Gustav’s impact was the degree of flooding and business interruption that would occur, both of which have been considerably less than initially feared – as well as Gustav’s wind and surge damage.

Sources: EQECAT, RMS

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