Hurricane Katrina will mean more than $1 billion in catastrophe losses in the third quarter for two major insurance carriers, based on statements the companies released this week.
American International Group Inc. (AIG) said it expects to report catastrophe losses of approximately $1.1 billion for the third quarter, primarily from Hurricane Katrina.
AIG said it estimates that total after-tax insurance related losses, net of reinsurance recoverables in the third quarter, would be approximately $900 million. In addition, it expects to record an after-tax charge of approximately $170 million relating to reinstatement premiums.
The $900 million estimate includes AIG's Domestic Brokerage Group (including Lexington Insurance Company); Domestic Personal Lines business; Foreign General operations; Domestic Life Insurance operations; AIG's prorated share of losses from its majority ownership in Transatlantic Holdings Inc.; Lloyd's Syndicate 1414 (Ascot); and AIG's minority investments in Allied World Assurance Co., Ltd and IPC Holding Ltd.
In addition to insurance related losses, AIG estimates it will incur approximately $60 million after-tax in non-insurance losses, primarily from consumer finance operations, investment portfolio impairments, and AIG owned and leased facilities.
New York-based AIG noted its estimate is based upon its best judgment from available information. However, the carrier cautioned that because of regulatory uncertainty, inability to access portions of the affected area, and other factors, the figure could go higher.
In a statement issued earlier in the week, insurer Berkshire Hathaway, based in Omaha, Neb., said it expects its share of loss from Katrina would amount to 3-to-5 percent of industry losses.
Berkshire said it is "particularly difficult" to estimate industry losses now, and "we don't intend to at this time."
Based on the industry estimate of losses from Risk Management Services, which the modeling service put at between $40 billion and $60 billion, Berkshire's share could come in anywhere between $1.2 billion and $3 billion.
Katrina, which struck more than three weeks ago, left New Orleans flooded. Adjusters still have not had access to many areas while the city is being drained. Hurricane Rita, churning in the Gulf and gaining strength, has forced the city to again issue evacuation orders.
Another complicating factor for the industry is a suit filed in Mississippi where the state's attorney general is seeking to force primary insurers, under a homeowners policy, to pay claims for flooding. The suit argues that since the flood waters were wind driven, policies should be covered.
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