Hurricane Sandy to Cost $15 Billion to $20 Billion, Hiscox SaysKevin Crowley
Hurricane Sandy, which slammed into New York and New Jersey last week, will cost insurers $15 billion to $20 billion in claims, according to Hiscox Ltd., the biggest Lloyd’s of London insurer by market value.
“It is a huge area, a thousand miles wide, being affected by the storm,” Chief Executive Officer Bronek Masojada said in a telephone interview today. “It could be $20 billion. All the nickeling and diming across huge numbers of properties suggests to me it’s going to be more expensive than not.”
Hurricane Sandy hit New York and New Jersey Oct. 29, barreling through the most populous region of the U.S., killing at least 90 people and leaving as many as 8.5 million homes and businesses without power. Masojada’s forecast is at the upper end of the $10 billion to $20 billion estimate by Eqecat Inc., a provider of catastrophic risk models.
Claims of more than $13 billion would make Sandy the third-most expensive hurricane on record, behind Katrina in 2005, which cost $62.2 billion, and Andrew in 1992, Masojada said. Hurricane Ike, which struck the Gulf of Mexico in 2008, is currently the third-most costly on record.
It’s “too early” to give a meaningful estimate of Hiscox’s losses from the storm though the insurer is in a “good position” to absorb any losses given the relative lack of natural disasters this year, the firm said in a statement today.
The stock dropped 1.7 percent to 475.2 pence a share at 10:12 a.m. today in London trading, valuing the insurer at about 1.87 billion pounds ($3 billion).
Insurers paid out $105 billion last year, with earthquakes in Japan and New Zealand and flooding in Thailand making it the industry’s most expensive calendar year on record, according to Munich Re, the world’s biggest reinsurer.
The bulk of insurance claims will be paid out to companies with property damaged by the storm, subsequent floods and covering loss of revenue during the affected period, Masojada said. Flooding is typically not included in U.S. home insurance policies for individuals and instead is covered by the federal government, he said.
Losses “above between $5 billion and $10 billion will start penetrating the reinsurance market,” Masojada said. Hiscox, which gets 40 percent of its revenue from the U.S., will pay out most of its losses on policies covering small companies and construction sites, he said.
Before the storm, property insurance rates had been rising across the U.S. following Hurricane Irene, which last year cost $5 billion, and changes to catastrophe modeling systems. Premium rates for U.S. property rose 10 percent in the year to Sept. 30, from the same period in 2011 and international reinsurance rates for policies covering catastrophes climbed 5 percent to 10 percent, Hiscox said in the statement.
Sandy will likely send reinsurance rates 5 percent higher while U.S. property premiums will increase a further 5 percent to 10 percent, Masojada said.
Hiscox’s revenue rose 6.4 percent to 1.24 billion pounds in the nine months to Sept. 30, compared with the same period in 2011, the Hamilton, Bermuda-based insurer said in the statement.
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