AIR Worldwide estimates loss estimate, Hurricane Katrina

AIR Worldwide has estimated the insured losses from the initial landfall of Hurricane Katrina should not exceed US$600 million. Katrina, with maximum sustained wind speeds of 80 mph at landfall, was a fairly weak Category 1 storm. However, the AIR estimate is higher than would be expected for a typical weak Category 1 hurricane due to two factors: landfall location and forward speed. AIR reports that Katrina made landfall in the heavily populated area between Hallandale Beach and North Miami Beach. “The high density and value of properties in Miami-Dade County contributes to a higher estimate of insured loss than one would expect for a typical weak Category 1 storm,” Dr. Jayanta Guin, AIR’s vice president of research and modeling, says.Guin further explains that Katrina came ashore with a slow forward speed of approximately 6 mph and lost very little strength as it crawled across the Florida peninsula. “Damage does not occur instantaneously, rather it accumulates over time from repeated battering,” Guin says. “AIR’s hurricane model explicitly captures this phenomenon, which engineers call ‘fatigue failure.’ Losses for Katrina would have been lower had the storm moved at a more typical pace.”Subjected to extended pounding by hurricane force winds, building components can weaken and fail. Therefore, Guin says there should not be much structural damage from Katrina’s Category 1 winds, but he explains that there will be damage to roof shingles, cladding, and other non-structural components, such as awnings. Mobile homes in particular, he continues, can sustain considerable damage when subjected to Category 1 winds over a long period of time.High demand for repairs following Florida’s 2004 hurricanes drove repair costs up, adding significantly to insurers’ losses. “In an analysis of detailed claims data from the 2004 hurricane season, AIR found that the effect was magnified by the fact that the storms were clustered both in time and location,” Guin reflects. ” Some of the damage from 2004 has still not yet been repaired and will impact the ability of contractors to respond to Katrina. In this way the damage from 2004 could lead to some increase in repair costs for Katrina.”Despite concerns about Hurricane Katrina damaging oil rigs in the Gulf and causing crude oil and natural price increases, oil held above $67 a barrel.