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Last Updated: Tuesday, 13 September 2005, 04:23 GMT 05:23 UK
Big rise in Katrina cost forecast
Flooded New Orleans seen from the air
About 60% of New Orleans is still submerged under water
The spiralling cost of Hurricane Katrina is taking a growing toll on the insurance market, leading firms warn.

The world's second-biggest reinsurer, Swiss Re, now reckons that companies will have to pay out a total of $40bn (22bn), twice its initial estimate.

California-based Risk Management Solutions, which assesses disasters for insurers and financial institutions, said losses may be even higher.

It sees insured losses at more than $60bn, with total damage at $125bn.

Risk Management said its higher figure was based on reconnaissance work carried out last week.

Katrina will probably be the biggest single disaster in insurance history
French insurance group

Flood damage is expected to account for half the total economic loss.

The hurricane caused widespread devastation in New Orleans, where about 60% of the city is still under water.

The cost estimate is higher than the cost of the suicide attacks on New York and Washington on 11 September 2001.

Economic cost

And estimates of the wider economic cost of the hurricane are also growing.

The head of the European Central Bank, Jean-Claude Trichet, has warned that the world will be facing lower growth and higher inflation in the third quarter as a result of higher oil prices.

But Mr Trichet said that growth should resume in the fourth quarter as the world economy was "quite dynamic".

'Increasing catastrophes'

In the UK, Lloyd's of London gave its syndicates until the end of business on Monday to supply details of the likely impact of the hurricane on their businesses.

And the UK head of Aon Re warned that the costs of Hurricane Katrina would result in a general increase in insurance rates.

Charles Cantay said that as a whole, the insurance industry would be able to carry the cost of the disaster.

But Standard and Poor's, the rating agency, said that it was placing 10 insurance companies under review because it feared that they might have difficulty in meeting their financial targets.

They include big US insurance groups State Farm and Allstate, as well as international re-insurers like Swiss Re, Montpelier Re, and Lloyd's of London.

Re-insurance pressures

This week the big reinsurers are meeting their customers in Monte Carlo, amid speculation that they may seek to increase premiums for coverage of oil platforms in the Gulf of Mexico by as much as 35%.

Swiss Re chief executive John Coomber said the world was facing "increasing natural catastrophe events".

"Price levels in the upcoming months must be adjusted to reflect these developments," he explained.

Swiss Re, which covers insurers against the cost of big claims, estimates its own exposure will be $1.2bn instead of a previously forecast $500m.

And a French insurance group said that it expected that Katrina would probably be the biggest single disaster in insurance history.

Munich Re, the largest reinsurer in the world, said on 2 September that it could face claims in excess of its initial estimate of $496m.

On the same day, Germany's Hannover Re, the fourth-biggest group, became the first reinsurance firm to warn that the cost of Hurricane Katrina would pull its profits lower.

The firm said its full-year net profit would reach "at least" the 2004 level of 309.1m euros ($386m; 211m). It had previously been hoping for up to 470m euros.

Hannover Re has said it expects a bill of 250m euros for Hurricane Katrina.


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