The Observer: Insurers face $40bn claims after Katrina: “Last week Shell increased prices for unleaded petrol from 90.6p a litre to 93.2p, while diesel prices went from 94.5p to 96.1p. A spokeswoman said that the Anglo-Dutch company, which has made record profits from the soaring crude price this year, has made losses in every quarter on petrol sales.”: Sunday September 4, 2005
Huge premium hike for British firms · Petrol price to hit £1 a litre this week
Richard Wachman and Oliver Morgan
BRITISH and American insurance industries face claims topping $40 billion following the devastation in the wake of Hurricane Katrina.
The figure, leaked to The Observer by sources within the Lloyds of London insurance market, is similar to the hit taken by companies following the terrorist attacks in September 2001. As a consequence, businesses face huge hikes in insurance premiums.
According to a document circulating within Lloyds of London insurance syndicates, the devastation left by the hurricane is equivalent to a worse-case scenario sketched out by Lloyds forecasters two years ago. The forecasters published a paper on the effect on the industry of a major hurricane in the Gulf of Mexico - where Katrina wrought havoc last week.
The highly secretive department at the Lloyds market, dubbed Department X, has also prepared estimates of the damage that could be caused by an earthquake along the St Andreas fault line in California measuring nine on the Richter scale. In those circumstances, the bill could be five or six times higher. Lloyds of London is expecting a hit of between £1bn and £2bn following last week's carnage, about 25 per cent less than its exposure after 9/11.
Massive claims are expected from oil companies in the Gulf of Mexico after Katrina destroyed rigs and refining equipment along the coast. Other claims will come from casino and club operators in New Orleans. Shipping companies are also among the claimants as well as businesses whose premises were demolished.
Insurance companies with the highest exposure are thought to be Munich Re, Swiss Re, AIG and Berkshire Hathaway, run by legendary US investor Warren Buffett.
Meanwhile UK motoring organisations warned that fuel prices could break through the £1 a litre level as early as this week. An AA spokesman said: 'It is only a matter of time before fuel goes through £1 a litre.'
An RAC spokesman added: 'We could see £1 a litre for diesel and unleaded fuel. Currently prices stand at around 95p for diesel and 91p for unleaded.'
Petrol prices have risen by 9p since the hurricane thanks to the shutdown of nine refineries in the Gulf of Mexico region. But oil companies will be reluctant to pass on the increase to UK consumers because of competitive pressures, particularly from supermarkets.
The RAC added: 'It is dependent on how much of the wholesale price increase the oil companies want to pass on to consumers. There will be some reluctance to be the first to move.'
However, the motoring organisation received reports on Friday that an independent station in Plymouth was already charging £1 a litre for diesel.
Neither BP nor Shell was prepared to comment on their plans, but neither would rule out such rises.
Last week Shell increased prices for unleaded petrol from 90.6p a litre to 93.2p, while diesel prices went from 94.5p to 96.1p. A spokeswoman said that the Anglo-Dutch company, which has made record profits from the soaring crude price this year, has made losses in every quarter on petrol sales.
BP has also increased prices, and a spokeswoman said that it made less than half a pence profit on a litre of petrol.
However, government sources were sanguine that the release by International Energy Agency member countries of the equivalent of 2 million barrels of oil would ease the pressure on prices. Britain will contribute the equivalent of 73,000 barrels.
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