“Hurricane Charley’s swath of destruction across Florida is expected to result in insured losses of between $5 billion and $10 billion, but insurance companies are likely to weather the financial storm,” writes Shaheen Pasha in today’s Wall Street Journal.

“Except at the lowest end of the range, these estimates would make Charley the second-costliest hurricane on record for the insurance industry, surpassed only by the devastating south-Florida landfall of Hurricane Andrew in 1992, which caused $20.3 billion of insured losses in 2003 dollars. Hurricane Hugo in 1989, which has held second place, caused insured losses of $6.2 billion in 2003 terms.”

“Estimates of the damage from Hurricane Charley, from catastrophe modeling companies Risk Management Solutions and AIR Worldwide Corp., don’t include most flood damage or other damage to uninsured property, which could equal the losses covered by property insurance, AIR Worldwide says. Units of State Farm Insurance Cos., Allstate Corp. and Nationwide Mutual Insurance Co. are among the private-sector insurers with the biggest exposure in the state.”

” ‘While the storm was quite severe, it didn’t approach the intensity of damage left by Hurricane Andrew,’ said Robert Hartwig, chief economist at Insurance Information Institute.”

“Industry officials and analysts say insurers doing the most business in Florida are protected from the kind of financial devastation that followed Andrew, when Florida insurers, mostly smaller companies, failed. That is partly because Charley was less powerful and missed the built-up coastline of Tampa Bay, and also because insurers and regulators took pains to insulate companies from catastrophic hurricane losses over the past decade. ‘These mechanisms have been designed with a Hurricane Andrew mind-set. If another Andrew happens, they’re equipped to handle that,’ said Steven Dreyer, managing director of Standard & Poor’s Ratings Group.”

“As a result, few expect the losses to spur insurers to increase rates beyond Florida and possibly other states hit hard by the storm, which hit coastal South Carolina after crossing Florida. Several analysts said they don’t expect the hurricane damage to reverse recent declines in property-insurance rates, which began declining late last year after more than two years of increases. One of the largest insurers in Florida, with 20% to 30% of the market in different regions, is Citizens Property Insurance Corp., a state-regulated association that serves as insurer of last resort, writing coverage where private-sector companies won’t, particularly for windstorms.”

“Since Hurricane Andrew, many companies have charged so-called hurricane deductibles, which leave policyholders responsible for windstorm damage up to a fixed percentage of the home’s insured value — for example, 1% to 6% — rather than a fixed dollar amount, as with other perils. That shifts more of the cost of minor damage to the policyholder.”

“Finally, the 11-year-old Florida Hurricane Catastrophe Fund functions as reinsurance for insurers operating in Florida, paying about 90% of each insurance company’s losses from hurricanes causing more than $4.5 billion in losses.”

“Allstate, which has the highest exposure of a publicly traded insurer with 11.4% market share in Florida, expects to take a material hit to third-quarter earnings, said Michael Trevino, a company spokesman.”

“However, the Northbrook, Ill., insurer said the potential losses from Hurricane Charley in Florida won’t have a material effect on the company’s overall financial condition. Allstate said the state hurricane fund will reimburse it for 90% of losses in excess of $286 million. The company estimates it can receive a maximum reimbursement of $922 million. Mr. Trevino added that it is still too early to assign a dollar figure to losses.”