According to a
U.S. Congressional Budget Office (CBO) estimate of 6 Sept,
the insured cost of Hurricane Katrina could exceed $30 billion.
Swiss Re on 12 Sept.,
the insured cost is probably actually $40 billion. That makes Katrina the most costly disaster ever for insurers, higher than the $35 billion for Hurricane Andrew in 1992,
$32.5 billion for 9/11, or $15-$20 billion for the 1994 Northridge Earthquake in Los Angeles.
Swiss Re had previously estimated $20 billion overall, with $500 million of its own losses. It now estimates $1.2 billion losses for itself.
Swiss Re will draw on its equalisation reserves to deal with this loss. So Katrina losses are rippling upwards from insured, to insurers, to reinsurers, to reinsurers’ self-insurance.
Ripples of Katrina are also spreading worldwide:
John Coomber, Swiss Re Chief Executive Officer, says: “We are witnessing increasing natural catastrophe events across the globe, effecting economies and societies with a higher frequency and severity. Price levels in the upcoming renewals must be adjusted to reflect these developments.”
Maybe insurers should start requiring good government as a prerequisite for insurance. Moody’s watchlisted for downgrade $10 billion in debts held by state and local governments in Mississippi and Louisiana (but not Alabama), but that’s because of disruption of government tax revenues. Even U.S. Treasury bonds have ratings, although no one pays attention to them, because default on those is considered very unlikely. Maybe there needs to be some other way to rate a country lacking adequate disaster preparation or relief planning.
The CBO report did not mention the possiblity of airline bankruptcies, which is a little surprising considering that everyone knew doubling of the price of jet fuel would probably cause some. It did, yesterday: both Delta and Northwestern. It will be interesting to see if CBO comes out with a revised report, and what it says about projections for the U.S. economy.