Hurricane Gustav--a Category 2 hurricane that battered the Louisiana coast yesterday--could cost insurers up to $10 billion, according to early catastrophe loss estimates. The top damage estimates include losses from oil and gas production fields, which felt the brunt of Hurricane Gustav as a Category 3 storm, with sustained winds topping 115 miles-per-hour. To recap the estimates from the catastrophe modelers: While not issuing an estimate for losses from the storm to oil and gas production fields along the Gulf of Mexico, EQECAT did say it expects 5 percent of production for oil and 5 percent of gas production capacity to be shut off for the next year. EQECAT said its onshore loss numbers include expected demand surge for products and services, in addition to property losses and business interruption claims. After its initial loss estimate, EQECAT sent out a revised loss estimate, dropping the loss range to $3 billion to $7 billion.
Risk Management Solutions in Newark, Calif., estimated insured losses could range between $4 billion and $10 billion, including onshore and offshore losses, but did not include potential damage to the levees. RMS said losses for offshore damage to oil platforms and wells, including production interruption, could range from $1 billion to $3 billion. Onshore looses for both residential and commercial properties--including business interruption--could run between $3 billion and $7 billion. The estimate does not include the National Flood Insurance Program.
AIR Worldwide Corp. issued a lower estimate range between $2 billion and $4.5 billion, not accounting for flooding for onshore losses. It estimated offshore insured losses between $1.8 billion and $4.4 billion.
Steve Smith, president of ReAdvisory, part of the Carvill Reinsurance brokerage, said while loss estimates range between $5 billion and $10 billion, “our view is that losses will be towards the bottom of this ranges.” Losses from Hurricane Gustav had the potential of being much worse, noted several of the modelers, as the storm was feared to hit the region as a Category 4 storm (which would have meant sustained winds between 131-to-155 mph on the Saffir-Simpson scale). Instead, Gustav hit the energy production fields in the Gulf of Mexico off the Louisiana coast as a Category 3 storm, with sustained winds at 115 mph. Gustav made landfall at around 9:30 a.m. yesterday near Cocodrie, La., South of Houma, La., as a Category 2 storm with sustained winds clocked at 110 mph. “Offshore damage was not as extensive as originally anticipated as Gustav weakened from a Category 4 hurricane to a Category 3 storm before blustering into the platforms,” observed Christine Ziehmann with RMS. She noted the platforms are “fairly resistant” to storms of this intensity, and said structural damage and impact to production would be relatively low. Yesterday, the U.S. Minerals Management Service, which regulates energy production off the U.S. Gulf coast, reported that 87 percent of production platforms and 83 percent of rigs were evacuated in the Gulf. One hundred percent of oil production was shut-down and 95 percent of natural gas production was shut-down. Reports indicate that the New Orleans levees that gave way during Hurricane Katrina in 2005 held this time, although waters from Late Pontchartrain did overlap the walls and some flooding was expected, and continued pressure on the levees could yet cause them to fail. While insures are beginning to assess the damage from Gustav, Hurricane Hanna is churning away in the Caribbean and heading toward the U.S. mainland. Hanna is threatening to strike the East coast anywhere from Florida to North Carolina. The National Weather Service is also watching Tropical Storm Ike and Tropical Depression 10, which could become Tropical Storm Josephine.