Filed Under:Markets, Reinsurance

Holborn: Sandy Losses Might Reach $30B; Models Are Off

Independent reinsurance-brokerage firm Holborn says insured losses from Superstorm Sandy could reach $30 billion.

Thus far the highest insured-loss estimate for the Sandy has been up to $25 billion, issued by catastrophe modeler Risk Management Solutions. The unique storm struck the southern coast of New Jersey late Oct. 29.

Despite its higher predicted insured-loss total, Holborn in a recent report on the storm says, “Supply and demand for reinsurance will not be directly affected by surplus changes as a result of Sandy, even though the Northeast is many reinsurers’ peak exposure zone.”

At year’s end, industry surplus may still be higher than it was in January. However, should Sandy cause “changes to the market’s views on models, underwriting or concentrations, capacity may be reduced,” the report adds.

Holborn says Sandy is challenging the catastrophe modelers. The brokerage says modelers’ estimates of personal losses might be too high, while commercial-lines losses may be too low.

The modelers, Holborn says, are assuming low take-up of flood coverage, but also assuming that personal-lines insurers will pay some losses due to flooding because of adjuster errors or contract ambiguity.

Holborn believes this assumption is leading to an exaggeration of projected personal-lines losses.

Holborn also believes that commercial-flood take-up is higher than modelers assume.

Complicating matters, according to Holborn, is a belief that it will take a long time for insurers to settle potentially complex claims generated by the storm.

The firm breaks down insured losses by line segment as follows ($ billions):

  • Property and auto wind: $6 to $10
  • Commercial flood: $3 to $6
  • Inland Marine: $2 to $4
  • Auto flood: $2 to $3
  • Ocean Marine: $1 to $2
  • Equipment Breakdown, Boiler, Power Interruption: $1 to $2
  • Other (cancellations, workers’ comp, life, etc.): $0.5 to $1.5

Holborn adds $2 billion to $3 billion for loss and adjustment expenses—the cost to adjust claims.

Separately, the worldwide reinsurance market is expected to record losses of between $5 billion and $10 billion, says Holborn. 

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