After taking its time to consider the manyvariables it said would prevent a quick assessment,catastrophe-modeler Risk Management Solutions has finally releasedits estimate of insured losses due to Superstorm Sandy: between $20billion and $25 billion.

RMS' estimate is slightly higher than those provided by othercat modelers and is more in line with the ballpark figure expectedby insurance executives and experts who expressed concerns thatprevious estimates were unrealistically low. 

RMS' estimate was conveyed by a RenaissanceRe executiveduring a Nov. 14 conference call on Sandy's impact, hosted byEvercore Partners. During the call, Kevin J. O'Donnell—who wasrecently promoted to president in addition to his role as globalchief underwriting officer—said RMS issued the guidance earlierthat day.

Shortly after the superstorm, as competitors released estimates,RMS held off, noting that it was too early to provide an estimateat that time because too many variables remained to provide a reliable range ofexpected insured losses.

If Sandy's losses fall at the high end of the new insured-lossrange from RMS, the superstorm would only trail 2005's HurricaneKatrina ($46.6 billion) on a list of the costliest hurricanes inU.S. history. 

That is, if Sandy is included on the list at all: According tothe National Weather Service, Sandy technically wasn't a hurricanewhen it made landfall.

O'Donnell went on to say he did not believe Sandy was analtogether unique event, adding that he fully expects to seefurther Sandy-like losses “in our lifetime.”

In the months prior to Sandy, rate increases were primarilybeing driven by international losses and updates made to RMS'hurricane model. Those drivers have “fully played out,” he added,leaving Sandy as the key topic of conversation during Jan. 1renewals.

O'Donnell said the losses wrought by Sandy will be“well-controlled” by the insurance and reinsurance industries, butrates may be affected by uncertainties and emotion.

Confusion over wind vs. water losses, as well as BusinessInterruption losses, will cause further uncertainty as to afinal-loss figure. The fact that Sandy is the second significantstorm to strike the Northeast in as many years—and that hurricanedeductibles didn't apply for either—will guide future conversationsover pricing and terms and conditions.

Modeler Eqecat has released two insured-loss estimates forSandy: The first was released before the superstorm made landfall,at which time losses were forecast at up to $10 billion. Severaldays later, Eqecat doubled that estimate to up to $20 billion.

Modeler AIR Worldwide released its own estimate of up to $15billion.

Eqecat and AIR's estimates came out days after Sandy torethrough the densely populated Northeast. Since then—even thoughmuch of the losses will be absorbed by the federal government'sNational Flood Insurance Program (storm surge is not covered by theprivate market)—it has been made clear that Business Interruptionwill play a large role in aggregate industry losses. 

An estimate by Karen Clark & Co. would further suggestpredictions from Eqecat and AIR could be low. The founder of themodeling industry released an insured-loss estimate of $12billion—for wind damage alone (see page 8).

Another factor that may affect the validity of cat modelers'initial estimates: According to Guy Carpenter, some modelersassumed the use of hurricane deductibles in their estimates.However, regulators in affected states have ordered they not beapplied since the storm was not technically a hurricane when itmade landfall.