Hurricane Isaac is expected to make landfall in Louisiana late today or early Wednesday, coinciding with the seventh anniversary of Hurricane Katrina. Fitch Ratings anticipates losses related to Isaac will be largely borne by primary insurers, but estimates remain uncertain as the storm has yet to make landfall.
Isaac is expected to be less powerful than the Category 3 Katrina. With maximum sustained winds near 100 miles per hour, Isaac is expected to be a Category 1 or 2 hurricane. That said, Isaac is following a very similar path to that of Katrina and is a broad storm, with tropical storm force winds extending up to 205 miles (Katrina had tropical storm force winds extending up to 230 miles). Forecasters at the National Hurricane Center anticipate severe flooding, with up to 12 feet of storm surge in Southern Louisiana and Mississippi. Though Isaac carries significant threat, new flood control systems built post-Katrina are expected to limit the surge from Isaac in the New Orleans region.
Catastrophe modeler AIR Worldwide reported an initial estimate of industry insured losses of $300 million to $7.5 billion, which would make up a modest 1% or less of U.S. industry statutory capital. At the high end of the range, Isaac could be on par with 2004's Hurricane Ivan ($8.1 billion), 1989's Hurricane Hugo ($6.7 billion), or slightly more than half of the losses of Hurricane Ike ($12.7 billion). However, loss estimates remain highly uncertain.
We expect the brunt of losses to be borne by primary writers, including State Farm, Allstate, Alfa Mutual (primarily concentrated in Alabama), and Liberty Mutual Group, based on market share positions in Louisiana, Mississippi, and Alabama. Market share was calculated based on direct written premiums and gives no consideration for reinsurance. The likelihood of losses being allocated to the reinsurance industry increases if losses come in at the higher end of AIR's range.
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