- The Washington Times - Monday, August 16, 2004


Insured losses from Hurricane Charley could total as much as $14 billion, according to industry estimates released yesterday as insurers fielded thousands of claims from hard-hit Florida residents.

Home, auto and commercial insurers sent teams to assess the damage and were taking claims at temporary centers set up at venues ranging from Wal-Marts to the Daytona International Speedway.

Insurance companies face losses in the hundreds of millions of dollars from Hurricane Charley, which killed at least 17 persons and left 25 counties federal disaster areas.

The blow for both insurers and their customers is expected to be cushioned by the multibillion-dollar Hurricane Catastrophe Fund, which the state established after Hurricane Andrew battered the region in 1992. Andrew’s damage drained insurers’ cash reserves, raised premiums sharply and drove some companies out of the Florida market or out of business altogether.

Munich Re, the world’s largest reinsurer, estimated the total value of damage caused by Charley at $20 billion, and put total losses covered by insurance at between $7 billion and $14 billion. Munich Re estimated its own exposure to be in “the low three-digit-million dollar range,” spokesman Florian Woest said.

Other companies issued lower estimates or said it was premature to estimate with storm damage still being assessed. AIR Worldwide Corp., a Boston risk-modeling company that helps corporations assess catastrophe risk, pegged insured losses at $6 billion to $10 billion, while Risk Management Solutions of California put them at $5 billion.

Two insurers with the most exposure are State Farm Insurance and Allstate, the nation’s biggest personal-lines insurers and the two leading providers of homeowners insurance in the worst-hit area.

State Farm said its losses would be limited to no more than $200 million because of Florida’s hurricane fund and reinsurance contracts.

Allstate said it would pay the first $289 million of catastrophic losses in Florida, with the hurricane fund covering 90 percent of losses above that total. The nation’s biggest publicly traded insurer said it has not estimated potential losses, which it acknowledged could be material to its operating results but should not have a material effect on its financial condition.

Bijan Moazami, an analyst for Friedman Billings Ramsey in Arlington, said insured losses will be no more than $4 billion to $5 billion and said the impact will be largely mitigated by the creation of the Hurricane Catastrophe Fund.

The fund provides reinsurance, or insurance for the companies themselves, to help them pay for major disasters. Built up by payments from insurers that operate in the state and a variety of other sources, it has $6 billion cash plus the capability to issue an additional $9 billion in bonds.

“At the end of the day, for a primary [insurance] company it’s going to be a substantial loss, but it’s not going to break their backs, mostly because of the Hurricane Catastrophe Fund,” Mr. Moazami said.

Regulators, he added, will likely be loath to approve any huge increase.

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