Aug. 29 (Bloomberg) -- Hurricane Katrina may rival the 1994 Northridge earthquake as the third most costly U.S. catastrophe, according to preliminary forecasts of insured losses.

The storm's estimated cost for insurers such as Allstate Corp. will probably be $9 billion to $16 billion, said Eqecat Inc., a storm modeler. Eqecat cut its estimate from as high as $30 billion as Katrina veered east of New Orleans, sparing the city a direct hit.

``People are breathing a sigh of relief that the storm has lost strength and that New Orleans appeared to be on the weak side of the storm,'' said Ray Stone, vice president of catastrophe operations at St. Paul Travelers Cos., the second- largest U.S. commercial insurer.

Insurers paid a record $22.9 billion last year for four Florida hurricanes. Storm-related payouts almost erased third- quarter earnings last year at Allstate, the biggest publicly traded auto and home insurer.

Katrina's tally may be in line with the 1994 Northridge quake, which Fitch Ratings said cost about $16 billion. The Sept. 11 terrorist attacks cost $20.1 billion, Fitch said. Hurricane Andrew, in 1992, was the most costly U.S. disaster, with insured losses of $20.5 billion.

Today's storm came ashore just south of Buras, Louisiana, with winds of 140 mph (225 kph) after weakening overnight, the National Hurricane Center said. Risk Management Solutions Inc., another modeler, predicted claims of $10 billion to $25 billion. AIR Worldwide Corp. estimated $12 billion to $26 billion.

Storm Weakens

Katrina was downgraded to a Category 1 storm after coming ashore as a Category 4 and was about 20 miles west-southwest of Hattiesburg, Mississippi at 2 p.m. local time, the National Hurricane Center said. Last night, it was a Category 5, the most severe on the Saffir-Simpson scale. Only three Category 5 storms have ever hit the country.

``The hurricane tracked somewhat east of downtown New Orleans and the western side of the storm showed evidence of weakening as it moved inland,'' said Kyle Beatty, a meteorologist at Newark, California-based Risk Management. ``Both of those served as positives for New Orleans.''

Fitch Ratings said Katrina will probably be the most costly single event for the insurance industry since Sept. 11. The terrorist attacks spurred the federal government to provide as much as $100 billion to help insurers in future attacks, according to the Insurance Information Institute.

St. Paul, Allstate

Shares of St. Paul, Minnesota-based St. Paul Travelers fell 47 cents to $44.27 in New York Stock Exchange composite trading. Allstate shares fell 77 cents to $57.18. Hartford Financial Services Group Inc., a property and casualty insurer based in Hartford, Connecticut, slipped $1.08 to $73.63.

Among publicly traded U.S. insurers, Allstate has the biggest market share in the affected areas at 15.7 percent, according to Banc of America Securities analyst Brian Meredith. St. Paul Travelers has the second-largest at 6.9 percent, Meredith said.

Bill Mellander, a spokesman for Northbrook, Illinois-based Allstate, also said it's too early to estimate insured losses from Katrina. The insurer has deployed claims adjusters throughout the southeastern U.S. to assess damage in affected areas once the storm passes, he said.

Hartford Financial said in a statement yesterday that it has a catastrophe claim team ready to move into damaged areas to begin processing claims.

State Farm

State Farm Mutual Automobile Insurance Co. won't make claims assessments until ``well after the storm hits,'' said Dick Luedke, a spokesman for the Bloomington, Illinois-based company. State Farm, owned by its policyholders, is the largest U.S. auto and home insurer.

``It will take at least a couple of days for them to get adjusters and experts down there to get an assessment,'' said J. Paul Newsome, an insurance analyst with A.G. Edwards & Sons Inc. in St. Louis. ``The estimates will improve as time goes on.''

Henner Alms, a spokesman for Swiss Reinsurance Co., the world's No. 2 reinsurer, also said it was too early to gauge the damage. Allianz AG spokesman Ashraf El Sharkawy, Axa SA spokeswoman Rebecca Le Rouzic and Hannover Re spokeswoman Gabriele Handrick also said it was too soon to comment.

Falling Rates

Destructive storms often lead to increased sales of insurance among homeowners and businesses. Fox-Pitt Kelton Inc. analyst Bill Yankus said Katrina won't spur enough demand to reverse falling prices for property and casualty insurance policies. Rates started dropping last year after three years of increases swelled profits and attracted new competitors into the marketplace.

``It would likely take a devastatingly large loss'' of at least $50 billion to stem the decline in prices, Yankus said in a note to clients today.

Fitch Ratings said in a report that it expects reinsurers to pay a bigger share of the claims from Katrina than insurers, a reversal from what happened after last year's four hurricanes. Reinsurers share in losses once the deductibles of insurers are exceeded. Since Katrina is a single event, insurers will pay one deductible before their reinsurance kicks in, compared with four deductibles last year, Fitch said.

Katrina is the second named storm to strike the U.S. this year. The first, Hurricane Dennis, caused about $900 million in losses last month, according to Insurance Services Office Inc.

New Orleans Mayor Ray Nagin ordered a mandatory evacuation yesterday after thousands of residents had fled Louisiana. Much of the city, 100 miles upriver from the Gulf of Mexico, lies below sea level.

Emergency Aid

President George W. Bush issued emergency declarations in both Louisiana and Mississippi, freeing federal disaster aid. The National Weather Service issued a hurricane warning yesterday for a more than 280-mile swath from Morgan City, Louisiana to the Alabama and Florida border.

The size of the warning area underscored the inability of forecasters to precisely predict Katrina's landfall. The hurricane may have already generated from $1 billion to $2 billion in claims after slicing through southern Florida on Aug. 26, Eqecat said.

More than 65 percent of the $2 billion in claims paid out to energy companies from last year's Hurricane Ivan stemmed from policies covering oil production in the Gulf, according to Risk Management.

Storm modelers input factors such as storm strength, size and trajectory into computer models that also include the amount of insured property in the storm's path.

Oil Claims

``There is a long list of production and refineries out because of the hurricane,'' said Tom Bentz, an oil broker at BNP Paribas Commodity Futures Inc. in New York. ``The course is similar to what we saw with Ivan last year, which hit production for a long time.''

Crude oil and natural gas soared to records in New York after Katrina moved into production regions of the Gulf of Mexico, the source of 30 percent of U.S. oil output and 24 percent of the country's natural gas. Oil climbed above $70 a barrel in electronic trading in New York.

Investors are concerned Katrina, the fiercest storm to strike the Gulf coast since 1969, will rupture pipelines, rip rigs from their moorings and disrupt production for weeks.

Chevron Corp. and Exxon Mobil Corp. shut offshore oil and gas production and evacuated staff. The Louisiana Offshore Oil Port closed its onshore pipeline to refineries.

The following is a list of the 10 costliest U.S. catastrophe losses to the insurance industry as of December 2004, according to Fitch Ratings.

Event                       $ Blns          Year
1. Hurricane Andrew           20.5          1992
2. 9/11 Terrorist Attack*     20.1          2001
3. Northridge Earthquake      16.0          1994
4. Hurricane Charley           6.8          2004
5. Hurricane Hugo              6.4          1989
6. Hurricane Ivan              6.0          2004
7. Hurricane Frances           4.4          2004
8. Hurricane Georges           3.4          1998
9. Midwest/South Tornadoes     3.3          2003
10. Hurricane Jeanne           3.2          2004
*Net of worker compensation and general liability.

To contact the reporter on this story: Jesse Westbrook in Washington at Jwestbrook1@bloomberg.net.

Last Updated: August 29, 2005 17:10 EDT