March 5, 2021

Irene Damage May Hit $7 Billion, Adding to Insurer Woes

Most of the loss will very likely come from property in New York and New Jersey, according to industry experts. Although Irene had diminished to a tropical storm by the time it reached New York early Sunday, those two states have the most valuable coastal property on the Atlantic Coast.

At $7 billion in possible losses, Irene would be among the 10 costliest catastrophes in American history, according to the Insurance Information Institute.

The most expensive disaster by far was Hurricane Katrina in 2005, which caused $45 billion worth of damage, not counting costs that were covered by the National Flood Insurance Program. The second, at about $23 billion, was the Sept. 11, 2001, terrorist attacks on the World Trade Center and Pentagon, which the institute counts as a single event.

All but one of the remaining top 10 were hurricanes, ranging in cost from $22 billion for Hurricane Andrew in 1992 to $6 billion for Hurricane Rita in 2005.

Insured losses in the Carolinas from Hurricane Irene were estimated Sunday at $200 million to $400 million by Eqecat, a company in Oakland, Calif., that models the effects of natural disasters. The company said that parts of North Carolina and Virginia had received 20 inches of rain, more than had been forecast, and that more than a million people were without power after Irene, which was ranked a Category 1 hurricane when it came ashore there.

In the Caribbean, Irene caused an estimated $500 million to $1.1 billion worth of damage, most of it in the Bahamas, where it was a Category 2 hurricane, but also in Puerto Rico, the Dominican Republic and other territories, according to AIR Worldwide, a Boston company that analyzes the cost of storm damage.

Even before the current Atlantic hurricane season started in June, American property insurers had run through a typical year’s worth of catastrophe payouts because of an unusual string of severe natural disasters. Their losses could grow even more, because forecasters have been predicting an above-average hurricane season this year.

The A. M. Best Company, which rates the financial strength of insurers, called the level of natural disasters this year “unprecedented” in a report on the American insurance industry issued last week. The company, based in New Jersey, said disaster-related losses this year had already exceeded the total for all of 2010. It estimated the losses at $27 billion through June 30, compared with $11.9 billion in the first six months of last year and $19.6 billion for all of 2010. The company based its findings on a survey of roughly 150 insurers, which it said accounted for 80 percent of the industry.

A. M. Best said the year’s series of major disasters would hurt insurers’ earnings, but was unlikely to threaten their capital. It noted, though, that the industry would “be tested through the remainder of 2011, as budgets for catastrophe-related losses already have been exhausted.”

Moody’s Investors Service said many property and casualty insurers were still profitable in the storm-ridden second quarter of this year, but their profits often shrank compared with the second quarter of 2010, and their reserves to pay claims had diminished and would have to be rebuilt at some point. A few, with large operations in the Midwest and Southeast, swung from profits to losses, Moody’s said, including Allstate, Hartford Financial Services, Travelers and Cincinnati Financial.

Moody’s research covered only the publicly traded insurers, not mutual companies like State Farm, which has the largest share of the personal insurance market in the United States. State Farm has disclosed payouts of more than $2.5 billion through May of this year.

Some of the losses for American companies grew out of catastrophes in other countries, including the powerful earthquake and tsunami that hit Japan in March and an earthquake in New Zealand in February that was followed by floods and destructive aftershocks.

In the United States, there were blizzards in the Midwest, fires in the Southwest, severe tornadoes in the Southeast, a hailstorm in Oklahoma that did more than a billion dollars’ worth of damage and flooding along the Mississippi and other rivers. The worst losses arose from the tornadoes and hailstorms that hit in April and May, including the tornado that struck Joplin, Mo., on May 22 and the one in Tuscaloosa, Ala., on April 27.

Eqecat said tornadoes alone were costing insurers up to $18 billion so far this year, with up to $7 billion of that from just three days, April 25 through 28. Most of the claims involved damage to homes and cars, and companies that sell personal insurance are taking a bigger blow than those that sell coverage to businesses.

Eqecat said those three days were “likely the most expensive tornado outbreak ever in the United States.”

Motoko Rich contributed reporting.

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