Ike Insured Loss Estimates Range From $6-To-$18 Billion

Saturday morning’s strike of Hurricane Ike on the Texas coast caused insured property damage of anywhere from as low as $6 billion to as high as $18 billion, the three major catastrophe modelers estimate.

Hurricane Ike battered Galveston, Texas, and the surrounding cities along the state’s barrier islands, leaving homes and businesses leveled along the coast. The storm came ashore as a strong Category 2 hurricane on the Saffir Simpson scale, with winds upward to 110 miles per hour at 2:10 a.m. EDT Saturday.

Flooding from the surging Gulf began on Friday as Ike moved onshore throughout the day. The storm has since swept north into the Midwest, bringing heavy rains and high winds into the region, and knocking out power to hundreds of thousands of homes and businesses—including National Underwriter’s home-office facility in Erlanger, Ky.

Oakland, Calif.-based EQECAT put its damage estimate between $8 billion and $18 billion on Saturday for the counties of Brazoria, Harris, Galveston, Chambers and Jefferson. The figures factor losses for commercial and residential properties, business interruption and offshore energy production platforms.

EQECAT said losses from energy production platforms would primarily be limited to older, shallow-water facilities.

“Onshore, flooded pumping stations and refineries are expected to impede immediate resumption of energy production,” said Tom Larsen, senior vice president of EQECAT, in a statement. “However, disruption isn’t expected to be extensive.”

Risk Management Solutions, based in Newark, Calif., said it estimates losses of between $6 billion and $16 billion, which includes both onshore and offshore losses. The figure does not include flooding.

Boston-based AIR Worldwide put onshore losses at between $8 billion and $12 billion, with expected losses of $10 billion. It put offshore losses at considerably less, $600 million to $1.5 billion.

“High-rise office buildings in downtown Houston have been subject to winds around 30 miles per hour higher than at ground level, potentially aggravated by debris from the proximity of these buildings in the downtown area,” said Christine Ziehmann, director of model management at RMS, in a statement. “Damage that has been observed so far to windows and facades is similar to that experienced in southeast Florida form Hurricane Wilma in 2005.”

RMS said there is approximately $900 billion of property value in Houston County, including the city of Houston.

“As expected, Houston’s high-rise buildings are reported to have sustained major damage to glazing, much like the damage caused by 1983’s Hurricane Alicia,” said Peter Dailey, director of atmospheric science at AIR, in a statement. “AIR expects wind damage to be widespread, not only along the coast, but also extending well over 200 miles inland form Galveston.”

While storm surge damage is considerable, RMS noted that much of it will not be privately insured. More of a question is flood damage to refineries or other large industrial facilities.

AIR said it expected significant damage to mobile homes and light metal construction, such as warehouses, and other structures with ornamental features, such as fast food restaurants. It did not expect significant structural damage to office buildings.

Property Claim Services, a subsidiary of the Jersey City, N.J.-based Insurance Services Office Inc., said in an e-mail that it has not compiled an estimate of insured property damage.

“PCS certainly recognizes the extent of damage the hurricane caused in Eastern Texas and Western Louisiana,” noted Gary Kerney, assistant vice president of PCS, in a statement. “PCS is also evaluating the extent of insured damage that the remnants of Ike caused as it moved away from the Gulf Coast and through the Midwest and into the lower Great Lakes region. Flooding and windy conditions caused additional damage to insured property, and PCS is gathering information about damage reported in these affected areas.”

On Sunday, Bloomington, Ill.-based State Farm, the top private insurer in Texas, said it received 14,000 calls from customers needing assistance and was adding call centers and staff to deal with the influx.

“If early reports are any indicator, there is significant damage to property spanning hundreds of miles,” said Larry Pratt, state executive director of Farmers Insurance in Texas. He said the company planned for this event, deploying people and resources 10 days ago.

As far as Hurricane Ike affecting the current soft market, Meyer Shields, a financial analyst with Stifle Nicolaus, said that while the storm might stem the recent slide in property insurance prices, it would not alter the global soft market.

Lis Gibson, insurance partner at Deloitte, said Hurricane Ike, along with Fay and Gustav, are “still not large enough to drive a change in the market rates. It would take 2008 turning into a repeat of 2005, with industry losses of $30 billion to $50 billion, for that to occur.

Deloitte later gave its own lost estimate of between $20 - $25 billion including losses to the National Flood Insurance Program.

A Bermuda-based reinsurer, Flagstone Reinsurance Holdings Ltd. released its own estimate on the storm from onshore damage with a range from $10 billion to $16 billion. The estimates were based on its on proprietary system.

Today, insurance rating agency A.M. Best said despite the size of Hurricane, it would not be a solvency event for the industry and that while some ratings of individual companies might be affected, the overall financial strength of the industry would not be weakened.

President George W. Bush has declared large portions of Texas and Louisiana disaster areas from Ike. The Federal Emergency Management Agency said more than 2.5 million customers are without power in Texas, Louisiana and Arkansas. More than 98 percent of the Gulf’s natural gas and crude oil remains “shut-in” (in non-production mode) and 15 refineries are shut down in Texas and Louisiana.