Hurricane Ike could hammer insurers

By Bill Rigby and Lilla Zuill

NEW YORK (Reuters) - Hurricane Ike, which is shaping up to be the biggest storm to hit Texas in nearly 50 years, will cost U.S. insurers billions of dollars if it passes straight through Houston or Galveston, industry experts said.

The Category 2 storm, expected to gain strength and hit the Texas Gulf Coast late on Friday or early on Saturday, could prove to be the most expensive U.S. storm ever, surpassing the $40 billion (22.3 billion pounds) of insured damage caused by Hurricane Katrina in 2005.

"It's got the potential to have a huge impact," said Brian Hurley, an executive of mutual insurer FM Global, warning that insured losses could top $50 billion. "We could have Katrina-plus if it gathers strength."

The biggest property insurers in Texas, and the most exposed to claims in the heavily populated coastal region, are State Farm Group, Allstate Corp and Farmers Insurance Group. The three together account for about half of the insurance market in Texas, according to insurance ratings agency A.M. Best.

Other players with smaller market shares include: American International Group, ACE, Travellers Companies and Chubb Corp.

The Dow Jones U.S. Property-casualty insurers index was about flat on Friday at 303.14.

Insurers face a welter of claims from businesses and homeowners in the low-lying areas around the nation's fourth-largest city, which forecasters say could be inundated with a 20-foot (6-metre) storm surge.

Insurers generally cover homeowners only for wind damage, not flooding, but many businesses in the region will have storm-surge coverage, according to Hurley.

Galveston County, a centre of oil refining and shipping 50 miles southeast of Houston, could also produce a large number of claims. The area was torn apart by the deadliest weather disaster in U.S. history in 1900. The National Hurricane Centre estimates that storm tides - some as high as 15 feet (5 metres) - were largely responsible for some 8,000 deaths.

Ike looks set to miss the heaviest concentration of offshore oil rigs in the area, but could cause more than $30 billion damage along Texas's densely populated northern coastline, according to catastrophe modelling firm AIR Worldwide.

"The largest concentrations of exposure in Texas are along the northern part of the coast, near Houston," said Dr. Peter Dailey, director of atmospheric science at AIR. "The five northernmost coastal counties, including Houston's Harris County, account for 85 percent of the total coastal exposure in Texas, which by AIR's estimate exceeds $890 billion."

Hurricane Katrina, which hit the U.S. Gulf coast three years ago, is the most costly storm on record, leaving in its wake damage that cost more than $80 billion, about half of which was covered by insurers, according to the New York-based Insurance Information Institute, a trade group funded by insurers.

The upside of storms for insurers is that they usually allow them to raise premium rates for replacement coverage. But it may be too early to consider that.

"Although this event could spark a firming of insurance rates, our view is tempered by concerns that we have about the balance sheets of certain companies," said Catherine Seifert, insurance analyst at Standard & Poor's Equity Research.

(Editing by Leslie Gevirtz)