Industry losses from Sandy would need to reach $50 billion in order to materially erode reinsurers' capital base, according to a Standard & Poor's analysis.
While most current estimates fall at or below $20 billion, S&P says there is still much uncertainty. For example, the ratings agency says some market participants believe loss amounts could be 30-50 percent higher than estimated due to insurers' inability to enforce hurricane deductibles in some states.
Additionally, S&P believes the wind versus water debates prevalent after Hurricane Katrina will re-emerge in Sandy's wake. “When major hurricanes hit the coast, it is difficult to determine whether wind or water caused the damage,” S&P says. “This uncertainty as to whether private insurers, the government, or the insured parties themselves are liable for the damage may result in costly and time-consuming litigation, as happened in 2005.
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