Hurricane Charley Devastates Florida, Carolinas

The total insured loss from Hurricane Charley will likely top US$6.8 billion, says the U.S. Insurance Services Office (ISO), making it the second costliest hurricane to hit the U.S. behind Hurricane Andrew. The ISO says the category 4 hurricane, which hit Florida on August 13, will cause US$6.755 billion in insured losses in that state. Losses from Charley’s touchdown in North and South Carolina on August 14 will be around US$45 million. At least 27 deaths are being blamed on the storm.

The ISO expects the hurricane will generate about 622,000 claims from homeowners, vehicle owners or businesses affected by the storm, of which 605,000 will come from Florida. Commercial claims account for about 40% of the price tag.

The ISO’s estimate is slightly below the US$7.4 billion in insured losses anticipated by the Insurance Information Institute (III). Risk modelers AIR Worldwide and Risk Management Solutions (RMS) have weighed in with estimates of US$6-$10 billion and US$6-$8 billion, respectively.

Among the companies reporting preliminary loss estimates is Toronto-based Fairfax Financial Holdings, which says it is exposed to US$35-US$45 million in losses from its Odyssey Re, Crum & Forster and Northbridge companies. Charley made landfall at Sanibel Island, off the coast of Fort Meyers, Florida, and weakened to a category-1to category-2 hurricane as it traveled northeast through Orlando. While packing sustained winds as high as 145 mph, Charley cut an unusually narrow path, risk modelers note. The hurricane weakened to tropical storm intensity as it traveled north to the Carolinas.

Losses could reach the point at which the Florida Hurricane Catastrophe Fund, the government reinsurance backstop, kicks in. The fund covers losses above the industry’s US$4.5 billion to a maximum US$15 billion per season, with an insurer retention of at least 10% above the deductible. The insured loss estimates do not factor in losses covered by the National Flood Insurance Program.

Fitch Ratings says the storm, which hit Florida’s Gulf Coast as a category-4 hurricane, should not affect insurer and reinsurer ratings generally, as most of the major writers impacted have a large and geographically diverse book of business. This will, however, be the first true test for the new Bermuda “class of 2001”, as its first major catastrophe loss.