As Hurricane Katrina ground its way north from the Gulf Coast late yesterday, estimates of insured losses ranged from $10 billion to $25 billion, which would amount to the largest loss from a single event since the terrorist attacks of Sept. 11, 2001.
Damage estimates generated by computer models had ranged as high as $30 billion, but some were based on the possibility that Katrina would hit as a Category 5 storm. Instead it weakened as it neared shore, and passed east of New Orleans as a Category 4. Later in the day, it was downgraded to 1. Nonetheless, it was clear that damage was severe and extensive, and Katrina is likely to end up as one of the most expensive storms ever for insurers.
Fitch Ratings said that it probably will be the largest loss from a single event since Sept. 11. Two hurricane modeling firms released preliminary but similar estimates of the insured losses from Katrina, Fitch noted, ranging from $10 billion to $25 billion.
Only very general estimates were available because adjusters had not yet been able to begin gathering claims information.
"We are standing by, and as soon as we can safely, and with the approval of local authorities, get surveyors in there to look at the damage, we will do that," said Dick Luedke of State Farm, the largest homeowners' insurer in Mississippi and Louisiana.
"We have special catastrophic claims representatives, who have been in this situation many, many times, ready to go to work," Luedke said, adding that they will be deployed as soon as the company has information on where they are most needed.
Insurers paid out more than $20 billion in claims from four hurricanes that hit Florida last year. The worst single event on record was Hurricane Andrew, which struck Florida in 1992, inflicting $21.5 billion in damage (adjusted to current dollars), according to the Insurance Information Institute, an industry organization.
"Total losses -- insured losses plus uninsured losses -- are often double the insured loss, and . . . flood losses are generally not covered by homeowners' policies," said Donald Thorpe of Fitch Ratings.
Analysts on Wall Street and elsewhere agreed that primary insurers have spread their risks among reinsurers, so it did not appear that major carriers faced financial damage they could not handle.
Even so, insurance company stocks went down yesterday, with Allstate dropping 77 cents, to $57.18; St. Paul Travelers falling 47 cents, to $44.27; and Hartford Financial Services Group dropping $1.08, to $73.63.
And if flood losses, as opposed to wind damage, are extensive, the federal government's National Flood Insurance Program could again be forced to borrow from the Treasury.
The program, administered by the Federal Emergency Management Agency, provides the bulk of the nation's flood insurance, and it took a beating last year. Though it receives no taxpayer funds, using premium income from property owners to pay claims, it has authority to borrow from the Treasury and was forced to do so after the active hurricane season of 2004.
Hurricane Ivan alone generated more than 27,000 flood damage claims valued at $1.3 billion last year, according to a FEMA spokesman. The program has 383,000 policies in force in Louisiana, with total coverage of $56.1 billion. However, relatively few have taken advantage of the coverage in Alabama and Mississippi, which apparently bore the brunt of the storm. Slightly more than 40,000 policies are in force in each state, with exposure for the agency of $6.2 billion in Alabama and $5.4 billion in Mississippi. By contrast, residents of a single county in Florida -- Broward -- have bought 408,677 policies with coverage totaling $74.4 billion.