Hurricane Sandy could be among costliest ever
Economic losses by storm
1. Katrina $105.8 b
2. Andrew $45.6 b
3. Ike $27.8 b
4. Wilma $20.6 b
5. Ivan $19.8 b
6.Charley $15.8 b
7. Irene $15.8 b
8. Hugo $9.7 b
9. Rita $11.8 b
10.Agnes $11.7 b
Source: National Hurricane Center
Figures adjusted to 2010 dollars on basis of US Dept. of Commerce Implicit Price Deflator for Construction. The storms from 2011 and later are not adjusted. The National Climatic Data Center rates Hurricane Katrinas damage at $133.8 billion 2007 dollars.
Hurricane Sandy, now the largest hurricane ever recorded in the Atlantic, has the potential to become one of the most expensive as well — causing some of the largest losses the global insurance industry has faced this year.
The catastrophe modelling firm Eqecat expects insured losses to range between $5 and $10 billion and economic losses of $10 billion to $20 billion. The estimates includes damages to residential property, commercial property, energy production and the interruption of business, according to Tom Larsen, senior vice president of Eqecat.
At the low end of Eqecats estimates, Hurricane Sandy would become one of the ten costliest hurricanes in US history, according to the Insurance Information Institute.
Currently 2011s Hurricane Irene is the tenth costliest at $4.3 billion. Irene affected many of the same areas Sandy is expected to. However, Irene was downgraded to a tropical storm before it reached the Northeast. Sandy was expected to stay a Category 1 hurricane at landfall, with wind gusts up to 90mph.
Mr Larsen says Eqecat expects insured losses from Sandy to be between an Irene and a [Hurricane] Ike.
If damage from Hurricane Sandy reaches the higher end of Eqecats estimate, the storm would become known as one of the five costliest US hurricanes ever. The estimate excludes flood damage. Flooding is insured by the federal government and could push damage costs up to $20 billion or more, according to the Eqecat analysis.
Chuck Watson, director of research & development for modelling firm, Kinetic Analysis Corp, says while its impossible to know ahead of time just how much destruction the storm will do, the potential is there for losses to exceed $20 billion.
During Irene I was talking down the potential Armageddon scenarios. In this case, this storm may actually live up to the hype, Mr Watson told CNBC in a phone interview yesterday.
Were currently looking at our models showing $12 to $15 billion in damages. I could see $20 billion because part of the issue here is this storm is a hybrid. It has some winter storm characteristics and some hurricane characteristics. The size of the wind field is phenomenal. Were looking at power outages from Virginia up to Vermont basically.
With tropical storm force winds 1,000 miles across, Sandy is a giant, with some saying this might be the biggest storm ever to hit the eastern seaboard and one of the biggest ever to land in the US.
Though the winds arent that strong relative to other recent monsters like Katrina or Andrew, according to NOAAs Hurricane Research Division, Sandy has a higher destructive power than any hurricane since 1969 — because of her massive size and the potential for flooding.
Hurricane Andrew, which battered Florida in 1992, caused $26 billion in damage at the time — more than $45 billion by todays standards. Mr Watson says Sandy is different because its so spread out.
Thats whats so economically disruptive about this storm. When you talk about this wide of an area having outages, just to give you an example, the extent of hurricane force winds for Andrew was about 30 miles across. For this storm, were talking hurricane force winds in 150 to 200 mile across range. Its phenomenal.
He and other risk modellers are also concerned the storm surge could hit refineries for major oil companies like Exxon Mobile that are close to the New Jersey shoreline and in the Delaware Bay.
Infrastructure there is vulnerable. Water levels are already two to three feet above normal. Were seeing potential, and I want to emphasise potential, but were seeing potential 15 to 20 foot storm surges along parts of the coastline. If it ends up in Delaware Bay, if it jogs south or nightmare scenario, jogs north, in the [New York] harbour, youre talking about water in the subway system. Those are really unpleasant scenarios.
The nations major retailers are expected to lose billions of dollars, and the losses could extend into the crucial holiday shopping season.
Im concerned about a lot of mid- and small-sized businesses that dont carry business interruption insurance for instance, Mr Watson added. These ripple effects through the economy from disasters can be quite complex and because this covers such a large area and because the economy is fairly fragile right now, Im afraid this is going to have effects that are really disproportionate to what you would think of from a storm like this.
As Americans were bracing for the storm yesterday, airlines around the world were preparing for a financial hit.
Airlines have cancelled thousands of flights with disruptions now stretching into Wednesday as carriers prepare for an extended suspension of service that is costing them millions of dollars and leaving thousands of flyers stranded.
Carriers cancelled more than 12,200 flights as of 4pm yesterday, according to airlines and flight-tracking website FlightAware.com. Virtually all scheduled flights for had been cancelled in and out of airports stretching from Washington, DC, to Boston, and airlines continue to cancel flights scheduled for today.
These cancellations are creating a ripple effect that is being felt around the world, forcing delays as far west as Seattle and San Francisco and leaving at least 50,000 travellers in the UK stranded with both BA and Virgin cancelling flights to and from the East Coast.
Already, carriers have cancelled more flights this week because of Hurricane Sandy than they did in August 2011 because of Hurricane Irene.
As big as Sandy may be, analysts say its nothing that would strain insurers financially aside from hurting earnings this quarter. Because disaster losses in general have been much smaller this year than last year, financial analysts say insurers are well placed to handle the inevitable claims, even if they exceed last years $4.3 billion in losses from Hurricane Irene.
With $500 billion-plus of capital ... we expect the (property and casualty) industry is once again well prepared to pay all Frankenstorm insured losses, Morgan Stanley analyst Gregory Locraft said in a report yesterday, using the nickname for the Sandy-noreaster combo.
While 2011 set global records for disaster losses of about $100 billion, mostly due to US tornadoes and Asia-Pacific earthquakes, losses this year are a small fraction of that. Reinsurer Munich Re estimated this summer that worldwide disaster losses were just $12 billion in the first half of 2012.
But with capital abundant, Mr Locraft and others said the biggest impact on the industry may be in fourth-quarter earnings. Insurers budget for a much smaller volume of catastrophe losses in the fourth quarter than in the third period, which is the more typical window for hurricane damage.
Sandys impact will inevitably lead to questions about the effect on insurance pricing, which has been rising for the last year or so.
Insurers suffered years of price weakness amid a relatively mild disaster climate, with rates in late 2010 and early 2011 dropping to levels last seen around the year 2000.
The catastrophes of 2011 changed that, and big insurers like Travelers have been steadily boosting prices in the high-single-digit percentage range each quarter since.
But Mr Shields said it was unlikely Sandy would have enough impact to accelerate price increases for the sector. For a single event, analysts and insurers usually talk about a $50 billion loss as the kind of hit that would instantly raise pricing across the board.
We do not expect a meaningful impact on commercial and reinsurance pricing levels, but the psychology of another large, unusual storm certainly should not hurt the pricing tone on the margin. An already very firm homeowners marketplace will only get firmer, said Larry Greenberg, an analyst at Janney Capital Markets unit Langen McAlenney.
Police seek witnesses after attack
Proceeds of crime forfeited
Hamilton Re strikes deal with Sompo Canopius
Students launch Bermuda captive
Eye test can help diagnose Alzheimerís
Craftswoman Barbara Millett dies, aged 80
Samuelís new garden will feed the needy
Calls for a living wage in Bermuda
Homeless centre will cost $4m
Letís learn from Olson controversy
Turning difficulties into miracles
Take Our Poll