--Hurricane Sandy could cause $5 billion to $10 billion in
insured losses
--At high end of range, Sandy would be fifth-most-expensive
hurricane in U.S. history
--Wall Street says insurance industry can handle losses of that
size
(Adds details on storm's potential ranking throughout, comments
from Risk Management Solutions beginning in the seventh
paragraph.)
By Erik Holm
Hurricane Sandy, the massive storm pummeling the Eastern
Seaboard, is expected to become one of the top 10 most expensive
hurricanes in U.S. history, according to disaster-modeling company
Eqecat.
The storm, which will deliver powerful wind gusts and heavy
rains to the most populous parts of the U.S., could cost the
insurance industry between $5 billion and $10 billion, Eqecat
estimated Monday.
At the high end of that range, Sandy would rank as the
fifth-most expensive hurricane of all time, surpassing Hurricane
Charley, which caused an inflation-adjusted $8.8 billion in insured
losses when it struck Florida and the Carolinas in 2004.
Damage estimates from Eqecat and other disaster-modeling
companies are closely tracked by the insurance industry for the
early indication they can provide about the financial impact of
major catastrophes on insurance-company capital.
Wall Street analysts that track the insurance industry say
insurers will easily be able to absorb a loss of $5 billion to $10
billion. The 2012 hurricane season has been uneventful until now,
and insurers are considered flush with cash.
Even at the low end of the Eqecat range, Sandy would become the
10-most-expensive hurricane in history, surpassing last year's
Hurricane Irene, which cost the insurance industry $4.3
billion.
Michael Kistler, director of model solutions for Risk Management
Solutions Inc., said Sandy is larger and slower-moving than Irene.
While RMS hasn't issued a damage estimate, Mr. Kistler said
forecasts indicate Sandy has the potential to cause more wind
damage and coastal flooding than last year's storm--especially in
and around New York City.
"There will be winds from Lake Michigan all the way to New
England," Mr. Kistler said. "The places that have a probability of
sustaining wind damage are going to be much larger and the wind may
be slightly stronger" than from Irene.
Inland flooding could be less severe than from Irene, in part
because there haven't been earlier storms this year that began
saturating the ground, as there were last year before Irene hit, he
said.
Another historical precedent: a 1903 hurricane that struck as a
category one storm on roughly the same part of the New Jersey
coastline that appears to be in Sandy's crosshairs.
Mr. Kistler said the 1903 storm would cause about $4.1 billion
in damage if it were to strike today. Hurricane Sandy is much
larger than the 1903 storm and has the potential to do more damage,
Mr. Kistler said.
Hurricanes weren't typically assigned named until the 1950s.
Eqecat also predicted economic losses, which include damage that
isn't covered by insurance, could be as high as $20 billion.
Economic losses from last year's Hurricane Irene were $10
billion.
The cost to the insurance industry will be somewhat muted
because home insurers generally don't pay for damage caused by
flooding. Sandy is expected to bring powerful waves to a large
swath of the East Coast, but much of the cost will be born by the
federal government's National Flood Insurance Program.
Still, commercial insurers like American International Group
Inc. (AIG) and Zurich Insurance Group AG (ZURN.VX, ZURVY) often
cover flooding for their business clients.
Companies can also buy so-called business-interruption coverage
that may reimburse them for some costs when a disaster disrupts
their operations or their supply chains.
Barry Buchman, a lawyer with Gilbert LLP in Washington, DC,
predicted such disruptions could be even more far reaching than the
storm itself.
"The Eastern Seaboard contains some of the most important cities
in the country...whose institutions regularly interact with other
parts of the country," he said. "The fact that New York City is
essentially shut down, for example, may have ripple effects in
other parts of the country."
By any measure, Sandy would cost far less than 2005's Hurricane
Katrina. That storm caused $46.6 billion in losses in present-day
dollars, the most-expensive natural disaster in U.S. history.
As the storm has approached the Northeast, insurers have joined
a long roster of companies that have delayed the disclosure of
third-quarter results. PartnerRe Ltd. (PRE), Montpelier Re Holdings
Ltd. (MRH) and Arch Capital Group Ltd. (ACGL), which had each
planned to release earnings after the close of trading Monday,
pushed back the announcement of their results until later this
week.
Write to Erik Holm at erik.holm@dowjones.com
--Leslie Scism contributed to this article.
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