Insurers Say Hurricane Losses Could Be Worse Than Expected

Insurers assessing their losses from Hurricane Katrina are now saying damage could be worse than previously expected, and Standard & Poor’s is threatening to downgrade 10 large insurance groups.

Swiss Re on Monday doubled its expected bill from the disaster to $1.2 billion, and rival reinsurer Munich Re said Sunday that its claims bill would rise above initial estimates.

“If the storm breaches the $40-billion mark for insurance losses, it becomes a more prominent event for the industry,” warned Adam Klauber, an analyst with Cochran, Caronia & Co.

Current estimates on total covered losses from the storm range from about $25 billion by two risk modeling agencies to as high as $60 billion by Risk Management Services.

Disaster modelers don’t actually assess damage but use past catastrophes to predict future losses. Insurers say that with much of New Orleans still underwater, it’s too early to assess total damage.

“Everyone’s relying on the modelers because there’s no firm data,” S&P; analyst Steven Adler said.

“The largest catastrophe to date was 1992’s Hurricane Andrew, which cost $20 billion to $23 billion. This is highly likely to be bigger, but how much bigger? No one knows,” he said.

Montpelier Re Holdings estimated Monday that its hurricane losses would be in the range of $450 million to $675 million, pushing its shares down more than 17% in U.S. trading.

“This is a significant net loss for us,” said Montpelier Chief Executive Anthony Taylor.

Montpelier is among the companies that S&P; said could be downgraded. Others include Allstate Corp., Allmerica Financial Corp. and Swiss Re.

Also Monday, mortgage lender Countrywide Financial Corp. said Katrina losses related to its insurance operations and some of its loans would be significant and probably exceed the $70-million loss from hurricanes in 2004. Still, shares of Calabasas-based Countrywide climbed $1.07 to $35.74.

It may take a long time to put a number on the final cost of the cleanup, reinsurers warned. But the reverberations from Katrina are already being felt throughout that market.

Peter Streit, an insurance analyst with Williams Capital Group, warned against overreaction.

“At this point insured loss estimates vary widely,” Streit said. “But even if they rise to $40 billion, that’s still only 10% of the U.S. industry’s capital. The insurance companies are well positioned to make this a manageable event.”