Insurers see $8 billion storm bill Andrew may top payout record

September 02, 1992|By Insurance Information InstituteJournal of Commerce

Insurance and reinsurance companies in the United States and elsewhere expect to pay record sums that could exceed $8 billion for damage wrought by Hurricane Andrew.

dTC Property and casualty insurers will pay an estimated $7.3 billioin claims to hurricane victims in Florida alone, trade industry officials told a conference in Miami, yesterday, citing figures from the Property Claim Service unit of American Insurance Services Group, in New York.

The estimate does not include insured losses from Hurricane Andrew in Louisiana or other areas affected.

Insured loss estimates for Louisiana are expected to be available today or tomorrow. Insured property damage should not exceed $1 billion in Louisiana, insurance sources said.

But already Andrew is considered the costliest insured loss anywhere: worse than 1989's Hurricane Hugo and San Francisco earthquake, and about five times as costly to insurers as the 1989 Exxon Valdez oil spill or the Piper Alpha oil rig explosion of 1988.

Ultimate payouts for Hurricane Andrew will lead British underwriters to charge American insurance companies more for their reinsurance, one expert said yesterday. Reinsurance acts as an insurance policy for insurance companies to help limit the amount of claims they must pay.

"That's going to put your rates up," said Lloyd's of London spokesman Nick Doke, when he learned that the $7.3 billion estimate was only for damage to Florida.

"You're going to pay us more for reinsurance," he said.

the $7.3 billion, only about $2 billion worth of risk will be retained by insurers here in the United States, Mr. Doke said.

A quarter of the remaining $5.3 billion will be insured in London, with some $660 million in gross losses expected at Lloyd's, he said.

The storm battered the Bahamas and South Florida with winds of up to 165 mph on Aug. 23 and 24 before crossing the Gulf of Mexico and hitting Louisiana on Aug. 25 and 26.

Lloyd's of London officials cited Hurricane Hugo of 1989 as the next most costly disaster. Lloyd's estimates Hugo will cost world markets $5.8 billion when all claims are settled, but estimates published in the United States put that figure at $4.2 billion.

Lloyd's cited an October 1987 windstorm in northwestern Europe as the next costliest disaster, with insured losses estimated at $5 billion, according to data supplied by Swiss Re, a reinsurer in Zurich.

Though Florida officials had expected as much as $20 billion in damage to result from Andrew's devastation, the latest loss estimate for Florida does not include uninsured damage to government and military facilities or public property, including roads and bridges; utility equipment, such as power lines; the cost of emergency services; and economic losses, such as crop damage and lost taxes.

Florida flood damage covered by the federal government's National Flood Insurance Program will add $50 million to the tally, the claims service said.

Approximately 685,000 hurricane-related claims are expected in Florida alone.

Worst hurricanes

Estimated insured losses

Year.. .. .. .. .. .. .Hurricane.. .. .. .. .. ..Damage

1992.. .. .. .. .. .. .Andrew.. .. .. .. . $7.3 billion

1989.. .. .. .. .. .. .Hugo.. .. .. .. .. .$4.2 billion

1979.. .. .. .. .. ...Frederic.. .. .. .. .$753 million

1983.. .. .. .. .. .. Alicia.. .. .. .. ...$676 million

1985.. .. .. .. .. ...Elena .. .... .. .. .$543 million

1965.. .. .. .. .. ...Betsy.. .. .. .. .. .$515 million

1985.. .. .. .. .. ...Gloria.. .. .. .. .. $419 million

1970.. .. .. .. .. .. Celia.. .. .. . .. ..$310 million

1969.. .. .. .. .. ..Camille .. .. .. .. ..$165 million

1982.. .. .. .. .. .. .Iwa.. .. .. .. .. ..$137 million

1954.. .. .. .. .. .. Carol.. .. .. .. .. .$136 million

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