Independent reinsurance-brokerage firm Holborn says insuredlosses from Superstorm Sandy could reach $30 billion.
|Thus far the highest insured-loss estimate for the Sandy hasbeen up to $25 billion, issued by catastrophe modeler RiskManagement Solutions. The unique storm struck the southern coast ofNew Jersey late Oct. 29.
|Despite its higher predicted insured-loss total, Holborn in arecent report on the storm says, “Supply and demand for reinsurancewill not be directly affected by surplus changes as a result ofSandy, even though the Northeast is many reinsurers' peak exposurezone.”
|At year's end, industry surplus may still be higher than it wasin January. However, should Sandy cause “changes to the market'sviews on models, underwriting or concentrations, capacity may bereduced,” the report adds.
|Holborn says Sandy is challenging the catastrophe modelers. Thebrokerage says modelers' estimates of personal losses might be toohigh, while commercial-lines losses may be too low.
|The modelers, Holborn says, are assuming low take-up of floodcoverage, but also assuming that personal-lines insurers will paysome losses due to flooding because of adjuster errors or contractambiguity.
|Holborn believes this assumption is leading to an exaggerationof projected personal-lines losses.
|Holborn also believes that commercial-flood take-up is higherthan modelers assume.
|Complicating matters, according to Holborn, is a belief that itwill take a long time for insurers to settle potentially complexclaims generated by the storm.
|The firm breaks down insured losses by line segment as follows($ 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 adjustmentexpenses—the cost to adjust claims.
|Separately, the worldwide reinsurance market is expected torecord losses of between $5 billion and $10 billion, saysHolborn.
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