Times Online: Katrina could be costliest event since 9/11: “Shell said that two of its oil drilling rigs under contract were adrift. An oil drilling platform broke free of its mooring in Mobile Bay, Alabama, and slammed into a bridge due to the high winds.”: Tuesday August 30, 2005

By Rhys Blakely,   

Insurers have downgraded estimates of the damage wrought by Hurricane Katrina, which roared through New Orleans last night killing at least 80. But the storm is still expected to be the costliest single event since September 11, 2001.

The most recent estimates of insured losses from the hurricane range from $9 billion to $20 billion (about £11bn), Munich Re, the world’s largest re-insurer, said today. Preliminary estimates from computer models had suggested Katrina could leave a trail of destruction costing as much as $30 billion in its wake.

However, fears that the hurricane would reach category five status were unrealised after it weakened as it approached the shore and passed New Orleans’ eastern flank as a class four storm. Late yesterday it was downgraded to class one.

Munich said it could lose up to $400 million but that it would not revise its forecasts for 2005 after making provisions for hurricane damage in its original figures.

Fitch Ratings, the international financial ratings agency, said Katrina would probably be the largest loss from a single event since the terror attack of September 11, 2001 on the World Trade Center (the estimated insured cost of which was at least $50 billion). Uninsured losses are likely to at least match those covered, it added.

"Total losses - insured losses plus uninsured losses - are often double the insured loss and Fitch notes that flood losses are generally not covered by homeowners' policies," Donald Thorpe, senior director, said.

"These insurance losses are in addition to the damage caused by Katrina's earlier land fall in Florida late last week that caused an estimated $600 million to $2 billion in insured losses. There is also the possibility that Katrina has caused significant damage to offshore oil drilling facilities in the Gulf of Mexico."

Oil prices hit $70.80 a barrel yesterday after Katrina forced the shutdown of nearly all the region’s oil production, more than 80 per cent of gas operations and forced eight refineries along the coast to shut.

The US Coast Guard said it received early reports of oil platforms and rigs adrift in the storm’s wake. Shell said that two of its oil drilling rigs under contract were adrift.

An oil drilling platform broke free of its mooring in Mobile Bay, Alabama, and slammed into a bridge due to the high winds.

"Nobody knows the full extent of the damage," said Marshall Steeves, an analyst at Refco Group. "The speculation is that it will be worse than Ivan, but we won’t really know for days, until oil companies get personnel out there and survey the damage."

Hurricane Ivan, which struck last September, wiped out a total of around 45 million barrels of US oil output over six months.

Oil companies said it was too early to confirm whether Katrina had caused any damage to infrastructure, and added that it could be more than a day before they are able to send damage-assessment teams offshore. "There will be a mad rush to get out there," said Tony Lentini, a spokesman for Apache, one of several companies that cut much of its oil and gas production over the weekend.

"Our goal is to get back up as soon as possible, but do it safely. It took almost a year to get back up to full production after Hurricane Ivan," he said.

The spike in the price of crude oil prompted American officials to confirm that they were prepared to release emergency oil reserves to calm fears of a fuel shortage.

Hurricane Andrew, which struck Florida, Louisiana and Mississippi in 1992, was the most expensive hurricane in American history, with insurers paying out around $21 billion by today's values, according to the US-based Insurance Information Institute (III).

Last year, four hurricanes - Charley, Ivan, Frances and Jeanne - combined to register almost $23 billion in losses.

Policyholders are likely to see premiums increase as meteorologists predict more frequent and fierce storms. In the last year, some American households in hurricane-prone areas have seen insurance bills rise by up to one-third.

Fitch expects the spread of loss through the insurance industry to be different than the 2004 hurricane season, with re-insurers taking a greater proportion of the loss than in 2004.

The agency said this was because the insured loss from Katrina will be from a single event, which means primary insurance companies will share losses with their re-insurers once losses meet their respective deductibles – the portion of their claim not insured under their re-insurance policy.

This contrasts with 2004 when insured losses were the result of four hurricanes, which meant primary insurers had to pay four sets of deductibles. 

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