Katrina will be biggest bill in history, says insurer
Cleaning up after Hurricane Katrina will produce the biggest insurance
bill in history, possibly as much as $50bn (£27bn) - twice as much as
some early estimates.
The prediction by Dane Douetil, chief executive of Brit Insurance, which
runs the eighth largest syndicate at the Lloyd's of London insurance
market, was accompanied by forecasts of rising premiums, particularly
for US commercial property and reinsurance.
It will still be some time before the official bill can be calculated.
Executives from Lloyd's are flying to Louisiana and Mississippi this
week, almost a fortnight after Katrina struck. Many insurers have yet to
send loss adjusters because of the severity of the situation.
Some insurers yesterday put early estimates on their own exposure to the
disaster. Royal & SunAlliance expected $46m of claims while Wellington
Underwriting, which among other thing insures oil rigs in the area, put
its loss at $75m.
Goshawk said it could contain its losses at between $25m to $30m because
of its own reinsurance cover, but warned that as the hurricane season
runs until the end of October further losses may yet be incurred.
Mr Douetil, who is also chairman of the Lloyd's Market Association, said
the hurricane "is likely to be the biggest ever insured loss. $50bn
would not be a surprising loss."
The figure easily surpasses the insurance bill for Hurricane Andrew,
which hit Florida in 1992. The damage ran to $22bn in today's money, the
previous record for a single natural disaster.
Mr Douetil was not yet ready to put a specific figure on Brit's exposure
to Katrina, but said the group had made an indicative loss from US wind
storms of $151m.
He said totting up the bill for Katrina was difficult because, unlike
other flood damage, the waters had not swept into buildings and then
drained away. Instead, it was stagnant and mixed with oil and other
pollutants. Buildings may have to be completely rebuilt.
Policies sold to homeowners in the affected areas do not include flood
cover, which is sold separately because of the high risk. Insurers will
now be trying to assess whether the damage was caused by winds, which is
covered by domestic policies, or by flooding, which is not. Mr Douetil
said this meant the situation was "open to interpretation".
Preben Prebensen, Wellington chief executive, said the insurer had been
expecting to step back from the market in 2006 but now that premiums
were likely to rise would consider increasing its activity.
Wellington's estimated loss of $75m is similar to its experience from
last year's four hurricanes - Charley, Frances, Ivan and Jeanne, which
together are thought to have cost more than Andrew in 1992.
Companies seeking catastrophe insurance now would pay as much for cover
for the remaining four months of the year as they would have done at the
start of the year for the whole 12 months.
Brit's interim pre-tax profits rose 61% to £112m for the six months. The
company will pay a 3p dividend and is considering further cash returns
to shareholders. Its shares closed up 1.5p yesterday at 89.25p.
Wellington's pre-tax profits for the six months to the end of June were
£69m, up from £32m in the same period last year. The dividend was up 40%
at 1.4p. The shares closed up 3.75p at 102.75p.