Hurricane Charley Loss Could Have Been Worse

AIR Worldwide puts the insured damages at between $6 billion and 10 billion, and experts from the Boston-based catastrophe modeler said the numbers could have been a lot higher.

"Charley moved through the area with unusual speed for a storm in this region, so buildings were not subjected to high winds for a protracted period of time," said AIR wind engineer Atul Khandari. "That fact, along with the compact size of the storm, and the fact that it made landfall only in a modestly populated area, kept losses lower." AIR estimated that if Charley had hit Tampa, as originally forecast, the insured losses could have exceeded $15 billion.

Improved building codes introduced in the aftermath of Andrew have also paid off. "Homes and buildings that implemented improvements in building construction and roofing design weathered the storm much better than the older structures," said John Eager, director of claims for the Property Casualty Insurers Association of America in Des Plaines, Ill.

However, mobile homes did not fare well. In the hardest-hit areas, mobile home losses were close to 100 percent. The nation's leading mobile home insurer Grand Rapids, Mich.-based Foremost Insurance Co.said it was too early to put out any loss estimates. But one hint of the damage was the fact that shares in mobile home manufacturers soared last week on hopes that a lot of replacements will soon be ordered.

Comparisons to Andrew will be inevitable. Not only are the absolute damage figures likely to be significantly lower for Charley, but a number of state-instituted reforms in the wake of the 1992 storm will aid both the insurance industry and states recover from the losses.

Earlier this year, the Florida Legislature expanded the capacity of the Florida Hurricane Catastrophe Fund to $15 billion from $11 billion and increased its bonding authority. Rade Musilin, vice president of the Florida Farm Bureau Insurance Companies, said that while such new capacity will probably not be needed, it will provide the affected carriers with the confidence to renew their policies next year. "When it came to Andrew, it was the year after the hurricane that was the problem," he said.

The state's insurer of last resort the Citizens Property Insurance Corp. is the second-largest player in the market, according to Standard & Poor's. Earlier this year it raised $750 million by issuing high-risk account senior-secured bonds. It remains to be seen whether policyholders will face a special assessment to pay for hurricane-related damages.

For the 10 carriers in the state whose Florida concentration placed it on a Standard & Poor's list of companies to watch for solvency challenges, Charley will most likely not prove anywhere near fiscally fatal, according to a number of officials from the companies cited.

Strong reinsurance programs supplemented by the state fund, coupled with sophisticated new modeling programs that preclude insurers from facing a potentially fatal concentration of risks will help these companies many formed after Andrew withstand any solvency threat. In addition, the fact that these companies avoid writing mobile home coverage will also seem the better part of wisdom this time around, the officials said.

(The 10 companies cited by S&P were: American Superior; Cypress Property & Casualty Ins. Co.; First Protective Ins. Co.; New America Ins. Co.; Omega Ins. Co.; Qualsure Ins. Corp.; Sunshine State Ins. Co.; United Property and Casualty; Universal Property & Casualty Ins. Co.; and Vanguard Fire & Casualty Co.)

Most individual carriers refrained from providing any specific damage numbers last week, but there were some early damage reports.

State Farm the company with the state's largest market share at 23.4 percent, according to statistics provided by National Underwriter Insurance Data Services reported 56,698 homeowner property claims as of Aug. 19. Zurich Financial the largest of the commercial multi-peril writers in Florida with a 19 percent market share estimated its losses at about $150 million, net of reinsurance.

Swiss Re expects claims from Charley to fall below $200 million, while XL Capital estimated its losses will come in at $125 million the majority of which will hit its Bermuda-based reinsurance unit.

Rating agencies agree that Charley will represent a material loss to the industry, and there is still concern about small companies concentrated in Florida.

"Charley is not expected to trigger a loss to any of the catastrophe bonds in the Fitch ratings universe, but that will not be known until better loss estimates become available," according to a statement issued by Chicago-based Fitch Ratings.

A.M. Best in Oldwick, N.J. said that "virtually" all companies would be able to meet their commitments despite the projected magnitude of the potential losses.

Reproduced from National Underwriter Edition, August 19, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.