Katrina may cost insurers record $25 billion

Hurricane Katrina may be the most expensive hurricane ever to hit the United States, costing insurers as much as $25 billion, a storm modeller said yesterday.

Shares of many insurers and reinsurers, which provide insurance for insurers, fell, although analysts say regulators often let insurers charge higher premiums after bad weather results in big payouts.

"We expect the bulk of the damage to be wind-related, but there is significant flood risk to commercial insurers," said Thomas Larsen, senior vice president at the modeler, Eqecat Inc. of Oakland, California.

Katrina made landfall this morning about 105 kilometres south-southeast of New Orleans as a Category 4 storm with winds of 225 kilometres per hour, the National Hurricane Center said.

In morning trading, Allstate Corp. fell $1.10, or 1.9 per cent, to $56.85; Hartford Financial Services Group Inc. fell 81 cents, or 1.1 per cent, to $73.90, and St Paul Travelers Cos. fell 62 cents, or 1.4 per cent, to $44.12.

In Europe, Munich Re shares fell 0.7 per cent and Swiss Re fell 0.6 per cent.

On Sunday, with Katrina bearing down on New Orleans, Eqecat said losses could top $30 billion, but then the storm weakened slightly and veered east. "The track shifted east 25 miles, which relieved some pressure on New Orleans because it put the city on the weak side of the storm," said Mr Larsen.

Eqecat now estimates a maximum $25 billion payout, which would make Katrina more expensive than Hurricane Andrew, the costliest US hurricane ever, according to the Insurance Information Institute.

It often takes days or weeks after a major storm to assess damage, and several insurers yesterday said it was too soon to estimate losses. Katrina may have generated $2 billion in claims when it tore through Florida on Friday, analysts said.

Bob Hartwig, the insurance group's chief economist, said payouts to homeowners may top those for business interruption, "given that the eye did not go over New Orleans."

But Ray Stone, vice president of catastrophe operations at St Paul, said flooding in the city is a big worry. St Paul does not expect to be able to assess losses before tomorrow.

Andrew resulted in about $20.9 billion of claims, after adjustment for inflation, when it ploughed through southern Florida in 1992. Insurers last year paid out $22.8 billion for four Florida hurricanes, the insurance institute said.

Andrew came ashore as a Category 5 storm, the most serious on the Saffir-Simpson scale. Katrina was also a Category 5 storm before it came ashore. Andrew caused about $26.5 billion of overall damage, before inflation, US government data show.

State Farm Mutual Automobile Insurance Co is the largest insurer of homes in Louisiana and neighbouring Mississippi, the Insurance Information Institute said.

Allstate, American International Group Inc., the Louisiana Farm Bureau Mutual Insurance Co. and St Paul are the next largest in Louisiana, while Mississippi Farm Bureau Mutual Insurance Co and Allstate follow in Mississippi.

According to Risk Management Solutions, a Newark, California-based risk forecaster, insured property in New Orleans and the seven surrounding parishes totals more than $110 billion.

Allstate spokesman Bill Mellander said the largest publicly traded US auto and home insurer is deploying claims adjusters near where it expects the worst damage.

Losses from the four Florida hurricanes nearly wiped out Allstate's third-quarter earnings last year.

Hartford claims adjusters are preparing to move into affected areas and may begin assessing damage within a week, company spokeswoman Victoria Gallant said.

Fraser Engerman, a State Farm spokesman, said, "Once we get clearance from authorities, we'll begin assessing damage. We know it's going to be bad."

AIG did not immediately return a call seeking comment.