Dean Damages Could Cost Insurers $1.5B

Insurers breathed a collective sigh of relief Tuesday after Hurricane Dean was downgraded to a category 1 storm without having inflicted damages as catastrophic as had been feared. Disaster modeling firm Risk Management Solutions put the likely costs to insurers at $750M to $1.5B, well below the costs that could have been incurred had Dean, which previously was rated a category 5 storm, hit popular vacation spots on the northeastern coast of Mexico’s Yucatan Peninsula. Risk Management said the majority of costs likely will come from Jamaica, with just $300M in claims likely to emerge from Mexico. Had Dean, the first hurricane of the 2007 season, tracked 150 miles further north and hit the popular tourist areas of Cozumel and Cancun, Risk Management said the costs in Mexico could have tripled. “Though Jamaica has taken a large hit, the track for a category 5 storm could hardly have been better planned to minimize the damage,” RMS said. In 2005, Hurricane Katrina and other big storms cost the industry a record $58B, according to the Insurance Information Institute. The news was also good for the oil industry as major refineries escaped damages. Crude futures dropped below $70 a barrel for the first time in nearly two months, closing down 2.3% at $69.47/bbl. on the New York Mercantile Exchange, while natural gas futures closed at their lowest level in 2½ years. “Oil and gas have proven that when a market rallies in anticipation of an event like a hurricane, and it does not happen, the downside reaction is larger than it would have been had we not had the storm in the first place,” said Alaron Trading analyst Phil Flynn.

Sources: Reuters, MarketWatch I, II, III
Commentary: A Baker's Dozen On Current Market Issues • Predictions For Another Bad Hurricane Season
Stocks/ETFs to watch: KIE, PIC, IAK

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