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by : Alpha Insurance Analysts

RMS, the catastrophe modelling firm, has reported to its corporate clients that Hurricane Sandy is estimated to cost between $20 and $25 billion in insured losses, of which 65% is from commercial lines and 35% from personal lines. The significant majority of modelled losses to personal lines arises from wind-related damage (80%), whilst the significant majority of modelled losses to commercial lines is driven by flood-related damage (88%). RMS estimates that approximately 50% of the insured losses will develop from New Jersey, 40% from New York, and 10% from other states.

The insured loss estimate is based on total economic losses of $55 billion and does not include losses to the National Flood Insurance Program (NFIP), which is estimated at $10 to 12 billion, nor to public buildings and infrastructure. The Federal Emergency Management Agency (FEMA) has said that the NFIP is likely to run out of money to pay Hurricane Sandy claims and will therefore need Congress to authorise a loan. It is expected that the NFIP rates will have to rise by up to 20% because of damage caused by Sandy.

A.M. Best stated business interruption costs could be between 30% to 40% of the total insured losses because of the extensive power outages. It cited that businesses likely to suffer interruption losses are Atlantic City casinos, New York City’s Metropolitan Transit Authority, the Port Authority of New York & New Jersey, the New Jersey Turnpike Authority, New Jersey Transit, Amtrak, Verizon, most major utility companies, exchanges such as Euronext (NYSE) and the New York Mercantile Exchange as well as a host of other very large financial institutions in lower Manhattan.

Property in Manhattan is generally insured by AIG, Chubb, Liberty and Travellers. Both AIG and Travellers are thought to have losses in the region of $2 billion, the majority of which will be retained net. (Travellers buys catastrophe reinsurance above $1.5 billion and some per risk reinsurance). It is still being debated how effective flood exclusions in insurance policies will be.
The latest views on Lloyd`s exposure to the loss are as follows:

Direct & Facultative property – underweight

Property Binders – potentially overweight

Marine and Cargo – potentially overweight

Property catastrophe reinsurance – market share

Based on the latest assumed market loss of $25 billion, it is currently thought that $6.5 billion would go into the property catastrophe market. If the market loss increases above this figure, probably up to 75 cents in every $1 of loss will go towards the reinsurers. As a reinsured loss, this is likely to be more serious than Hurricane Ike in 2008, but is still only considered a dent in profits at this stage and therefore should be within the annual budgeted catastrophe loss for syndicates.

Meanwhile, we are hearing that brokers acting for US insurance companies with a reinsurance renewal date of January 1st are already in the market trying to renew their reinsurance programmes before they have to admit to losses. SOME THINGS NEVER CHANGE!