EQECAT doubles Sandy insured loss estimate to $10B – $20B

Risk modelling firm EQECAT have just issued an updated estimate of losses from hurricane Sandy now including post-landfall observations and analysis. EQECAT were the first modelling firm to come out with an early pre-landfall estimate of losses on Monday that pegged the insured loss at somewhere in the range of $5 billion to $10 billion. Now, after taking into account factors witnessed during the storm’s landfall impact they have doubled the estimated range of insured losses to $10 billion to $20 billion.

EQECAT says that they expect the economic loss from Sandy to be between $30 billion and $50 billion, with insured losses of between $10 billion and $20 billion.

Factors that influenced the rise in estimated losses include:

• The large electric and utility losses will trigger significantly more insured losses (business interruption) than were expected from a more typical category 1 storm
• The subway outage (and roadway tunnels) will be leading to higher expectations of loss amplification
• The continuation of discovery produces more remaining “unknowns” to produce better certainty in the losses

This is now the highest insurance industry loss estimate from a modelling firm and it could be telling as taking the bottom end of the expected range above $10 billion could put more reinsurance contracts, industry loss warranties (ILWs) and also catastrophe bonds at risk. It’s also very close to the range that Credit Suisse suggested in an update yesterday.

Were the final total industry loss to come in towards the upper end of the range, near $20 billion then the impact to the cat bond market could be much bigger, as well as the impact to reinsurers, ILW transactions, private ILS deals and other structures.

It will be interesting to see what the next updates from the other modelling firms suggest losses could be. We will keep you updated.