Hurricane Hugo: Ill Wind for Insurers : Covered Damages Top $4 Billion, Comprehensive Survey Shows

Hurricane Hugo left behind insured losses of more than $4 billion, making it by far history’s most costly storm, according to the insurance industry’s first comprehensive survey of damages.

The estimate, released Thursday by an industry group, does not include extensive losses to public property, ranging from harbors to roads, bridges and utility equipment. Nor does it cover damage to uninsured private property.

The previous record storm struck shore almost exactly a decade ago, when Hurricane Frederick ran up insured losses of $752.5 million on Sept. 12-14, 1979. Hugo struck the Caribbean, including parts of the U.S. Virgin Islands and Puerto Rico, on Sept. 17-18, before roaring across the Atlantic to slam into South Carolina, North Carolina, Georgia and Virginia three days later.

The American Insurance Services Group, an industry-supported lobby and research agency, estimated insured U.S. losses at $3.98 billion. It said another $500 million in damages are expected from flood-insurance policies paid by the U.S. Treasury but sold and administered by about 200 private insurers.

In all, the industry expects the storm to generate more than 360,000 claims for insurance benefits, the group said at a press conference in Columbia, S.C.

South Carolina also was the state that absorbed by far the largest share of damages--more than $2.5 billion in expected claims. More than $1.5 billion of the state’s total was reported in the state’s four coastal counties of Charleston, Horry, Georgetown and Berkeley. North Carolina had insured losses of $275 million; Virginia, $5 million, and Georgia, $1 million.

Worst Year Ever

In Puerto Rico, insured property losses totaled an estimated $700 million. Losses in the Virgin Islands added another $450 million.

The anticipated claims will bring total U.S. catastrophic losses for just the first nine months of the year to $5.636 billion, already making 1989 by far the worst year on record. The old mark of $2.82 billion was in 1985. (In insurance terms, a catastrophe is an event that generates an expected insured loss of more than $5 million.)

Separately, at least two more insurers said financial fallout from Hugo would hurt their third-quarter results.

In Philadelphia, Cigna Corp. said it will take a $90-million after-tax charge to cover its anticipated losses, and a spokesman added: “There are parts of the Virgin Islands that we haven’t been able to get to.”

In New York, AmBase Corp., the parent of Home Insurance, Commonwealth Insurance and US International Re, said it expects pretax income to be reduced by $23 million to $30 million in its third quarter, dropping earnings below last year’s quarter, because of hurricane losses.

Meanwhile, insurance industry analysts began speculating on the effect that $4 billion in catastrophic losses might have on future policy prices, which had been generally softening through intense competition, reflecting excess underwriting capacity.

Business Insurance magazine this week reported speculation that if Hugo’s losses were to exceed even $3 billion, it could help tighten the currently soft insurance market. It quoted Myron M. Picoult, senior insurance analyst with Oppenheimer & Co. in New York, as saying before the actual magnitude of damages was known: “I don’t see how it doesn’t tighten the market.” And Michael A. Lewis of Dean Witter Reynolds told the magazine that it would take claims of “at least” $3 billion to $4 billion to have an appreciable effect on the insurance market.

Might Be Beneficial

William J. Davis, manager of the Insurance Information Institute’s Southern office in Atlanta, who attended the Columbia press conference, acknowledged Thursday that “some tightening” might occur in the insurance market generally, which would be beneficial for the industry, but added that this would not translate into higher policy prices for current claimants.

The effect on individual companies will depend, however, on how much of their insured risk they sold to reinsurance companies, which share part of an insurer’s premium income in exchange for part of its risk.