Catastrophe modelers dropped billions off their loss estimates of insured losses from Hurricane Ike, based on additional analysis of the storm's impact, but a consulting firm said the numbers could be much higher.
The Newark, Calif.-based RMS said yesterday that its new insured loss estimate stands between $7 billion and $12 billion–a change from its earlier $6 billion to $16 billion estimate. Oakland, Calif.-based EQECAT knocked $6 billion off its high-end estimate of $18 billion. The loss range fell from $8 billion to $18 billion to between $8 billion and $12 billion.
RMS said the estimate includes both onshore and offshore losses resulting from strong winds and storm surge. It does not include losses covered under flood policies issued by the National Flood Insurance Program (NFIP). The estimate also does not include loss of oil and gas production due to pipeline supply interruptions.
EQECAT said Gulf of Mexico Offshore Energy Model total economic loss to oil and gas facilities are estimated to range between $4 billion and $6 billion, with property damage making up about $1.5 billion to $2 billion.
RMS's revision is based on analysis of damage reports, verified wind speed and tidal gauge observations, and on-site assessment from multiple reconnaissance teams, RMS said. EQECAT said its changes were made in light of inspection reports and additional data regarding the storm's characteristics.
Both modelers said teams found less damage than initially feared, but some areas were severely affected.
Downtown Houston had minimal damage, said Christine Ziehmann, director of model management at RMS, despite extensive damage to the 75-story J.P. Morgan Chase building. Most large industrial facilities, including oil refineries, escaped significant damage but await power restoration.
RMS said one uncertainty is how much of the onshore loss will be paid out under flood or wind policies, particularly for the destroyed coastal communities of Bolivar, which were subject to some of Ike's strongest winds and storm surge.
A spokeswoman explained in an e-mail that from past experience the combination of wind and storm surge damage make it "difficult to reconcile the key driver of damage." The industry will have to make judgments on allocating loss dollars–and this has led to litigation in the past–but trying to determine the allocation of dollars now would be purely speculative.
Ike battered the Galveston, Texas coastal area on Saturday with sustained winds of 110 mph, a Category 2 storm on the Saffir-Simpson scale.
Losses to offshore oil and gas platforms stand to contribute relatively little to the total insured losses for Ike because the storm's intensity fell within the design levels for the platforms.
However, Jamie Hole, executive vice president and global product management officer of Towers Perrin's Reinsurance business and principal of the Stamford, Conn.-based firm, said the numbers could well climb significantly higher than the high end of the modelers' estimate so far. The cause for the higher number would come from storm damage in the Midwest where Ike continued into the region causing wind damage and power outages.
"The modeling companies published their estimated ranges, but losses could certainly be higher due to a high frequency of small claims coming out of the Midwest," Mr. Hole said.
Those claims would not be of the huge, catastrophic type, but a lot of smaller personal lines claims in the $2,500 to $5,000 range.
While the losses may not necessarily make for a market turnaround, they could have a stabilizing effect, he noted.
If the catastrophe models have understated the loss, the fallout could be that the industry might become more conservative in its underwriting, Mr. Hole said. But he emphasized that there was no hard evidence of this being the case yet and that "this is something we have to watch." Some indication of the loss direction could be coming out as soon as 10 days from now, he suggested.
Today, Moody's issued a statement saying that it does not expect insured losses from Hurricane Ike to have "a meaningful impact on U.S. property-casualty insurers." Some insurers' rating could be affected if losses hit the high end of estimates originally put at $18 billion, Moody's said.
Getting those claims adjusted seems to be making some headway. The Kentucky Department of Insurance said the Sept. 14 windstorm caused extensive damage and carrier representatives were on the ground quickly assessing the situation. Commissioner Sharon P. Clark said there was a delay for adjusters getting into areas because of downed power lines and trees. As the cleanup continues, adjusters are able to access more areas.
"We urge consumers to be patient as they work through the claims process," Ms. Clark said in a statement. "Many adjusters were working in Gulf Coast states impacted by Hurricane Ike and are being pulled back to Kentucky. With the widespread damage we've seen, it will take some time to respond to all customers."
According to the U.S. Department of Energy, 2.03 million customers remain without power in six states. Texas has the most outages with more than 1.5 million customers without electricity–385,807 less than what was reported on Wednesday. Ohio is second with 323,700 outages, and Kentucky third with 130,620.
The department said that close to 19,000 customers in Texas and Louisiana remain without power due to flooding. Some customers in Texas will not have power restored until early October, and no date for restoration has been determined for the areas of Taylor Landing, Bolivar Peninsula and Sabine Pass.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.