Early Estimates of Ike Damage: $6B to $18B

The Real Numbers Won’t be Known for Weeks

Estimates of insured damage from Hurricane Ike vary widely — from $8 billion to $16 billion, according to several catastrophe risk modeling firms, but Texas Insurance Commissioner Mike Geeslin has pointed out that only insurance adjusters on the ground would be able to accurately assess the extent of losses resulting from the storm.

Catastrophe risk modeling firm AIR Worldwide Corporation has estimated insured losses to onshore properties in the United States from Hurricane Ike are between $8 billion and $12 billion, with an expected loss of $10 billion.

Extreme risk modeling firm EQECAT Inc. reported that initial post-landfall estimated insured onshore losses from Hurricane Ike could range from $8 billion to $18 billion, primarily in the Texas counties of Brazoria, Harris, Galveston, Chambers and Jefferson.

Catastrophe risk experts Risk Management Solutions (RMS) projected preliminary insured losses of between $6 billion and $16 billion. That estimate includes both onshore and offshore losses.

Jerry Johns, with the Southwestern Insurance Information Service, noted that it is too early to accurately estimate insured losses and it may be weeks before preliminary numbers are available. “The real issue right now is getting adjusters access to Galveston Island. Search and rescue efforts are continuing which makes it unsafe for claim folks to access their insurers. We are asking victims of Ike to be patient. Adjusters will be contacting them just as soon as possible,” Johns said.

Howard Mills, insurance adviser to the consulting firm Deloitte LLP, told the Associated Press that the early forecasts were “a little bit high.”

“Houston is a mess, but not as bad as it could have been if the surge had gone up that ship channel,” Mills said. “But you’re still looking at very significant business interruption losses. The power outages in downtown Houston alone are a problem.”

In a statement released Sept. 15, Standard & Poors Rating Service said it did not expect catastrophe bonds to be triggered as a result of Ike. “So far the 2008 hurricane season looks somewhat similar to that of 2004, where the primary insurers bore the brunt of the losses relative to reinsurers because these losses generally fell within the deductible/risk retention limits of the primary companies’ property catastrophe reinsurance programs,” S&P said.

Although it recognized “Ike is the latest and most severe natural catastrophe in a year of unusually high frequency,” S&P said in its opinion, “the magnitude of these events, on a stand-alone basis, is insufficient to have a material effect on pricing trends in either the primary or reinsurance markets. However, if this year’s pattern continues with a succession of storms with aggregate losses in the tens of billions of dollars, this could stabilize pricing in the property catastrophe market.”

TWIA

Questions remain about what Ike’s impact will be on the Texas Windstorm Insurance Association, the insurer of last resort for wind and hail along the Texas coast.

TWIA has a total estimated coast exposure — including additional living expenses and business interruption coverage — of $66.6 billion, according to the Insurance Information Institute. TWIA Executive Director Jim Oliver has estimated four counties, Galveston, Brazoria, Chambers and Jefferson, represent $29 billion in exposure for the fund. The number of insured properties covered by the association has continued to climb. As of Aug. 31, 2008, the total number of policies in force in TWIA was 224,468, up from 216,008 at Jan. 1, 2008.

Beyond collected premium, TWIA funding sources include insurer assessments, the state’s Catastrophe Reserve Fund and reinsurance purchased by TWIA. Once these funds have been depleted, any losses to TWIA in excess of $2.3 billion would be financed via an unlimited assessment on insurers that is recoverable through premium tax credits.

A Strong Category 2

Hurricane Ike made landfall at Galveston, Texas at 3:10 am EDT, Saturday, Sept. 13, as a strong Category 2 hurricane. Maximum sustained winds at landfall were 110 mph, just shy of Category 3 on the Saffir-Simpson intensity scale.

Flooding continued to be a major concern days after the storm, despite the fact that the 20-foot storm surge that the National Hurricane Center (NHC) had warned of failed to materialize.

Topics Catastrophe Texas Profit Loss Hurricane Reinsurance Risk Management