RMS Increases Insured Loss Estimate for Hurricane Katrina to $20-$35 Billion

Insured Losses from Levee Breaks in New Orleans Still Under Evaluation

Newark, Calif. – September 2, 2005 – Estimated insured losses from Hurricane Katrina’s direct impact have increased to $20-$35 billion, as announced today by Risk Management Solutions (RMS), the world’s leading provider of products and services for the management of catastrophe risk. On the day of Katrina’s landfall on the Gulf Coast, RMS released a preliminary estimate of $10-25 billion for insured losses. Today’s increased estimate is based on more detailed information from aerial and ground reconnaissance on wind and storm surge damage, as well updated reports on damage to offshore platforms and infrastructure that sustained Category 5 winds as Katrina passed through the Gulf of Mexico.

Hurricane Katrina can be viewed as two loss events: the direct impact from the wind and storm surge, and the subsequent flooding that occurred in New Orleans as a result of the levee breaks starting on Tuesday, August 30. RMS is continuing to assess the estimated loss associated with the New Orleans flood, and expects the insured loss estimate to increase as the extent and duration of flooding are better defined.

RMS expects total economic losses from both events to exceed $100 billion, including both insured and uninsured components of loss. In major catastrophes, the uninsured component of loss often equals or surpasses the insured component.

RMS has representatives available for comment in London and California.

Editor's Note:

It is widely recognized that Hurricane Katrina has numerous sources of loss, from the offshore and onshore wind and storm surge effects to the devastating flooding in New Orleans. RMS is modeling the flooding in New Orleans as a separate and distinct physical phenomena from the wind and storm surge effects. This is due to fact that the flooding was a result of the failure of the levees. RMS traditionally models hurricane related flooding from storm surge only.

Insurance losses from Hurricane Katrina's second landfall will be extensive, and assessing these losses will be a complex undertaking due to the impacts across multiple classes of business, the overlap of wind, storm surge, and flood damage in many of the most severely-affected areas, and extensive business interruption and demand surge. It is important to note that while RMS has modeled the physical effects of the wind and surge separately from the flooding, we are not taking a position on how insurance and reinsurance claims should be handled regarding the definition of an event. Individual insurance and reinsurance contracts will determine how claims will be handled in this regard.