Officials at American International Group (AIG) and Berkshire Hathaway — two companies currently linked in a probe into alleged violations using finite insurance products — said their companies will probably each lose more than $1 billion from Hurricane Katrina.
AIG executives noted that initial estimates of the company’s total expected losses relating to third-quarter catastrophic events — mostly the hurricane — will reach about $1.1 billion after taxes. The total after-tax insurance-related losses, net of reinsurance recoverables, will be about $900 million in the third quarter, the company added.
“These preliminary estimates involve the exercise of considerable judgment and reflect a combination of ground-up evaluations, modeled numbers, and industry loss estimates,” said AIG officials. The largest commercial and industrial insurer in the country warned, though, that its ultimate costs could be even higher.
Meanwhile, Berkshire Hathaway said in a regulatory filing that it expects to incur 3 percent to 5 percent of the industry losses associated with Hurricane Katrina. According to marketwatch.com, catastrophe-modeling firm Risk Management Solutions expects the hurricane to cost insurers between $40 billion and $60 billion, which means Berkshire’s losses from Katrina would total between $1.2 billion and $2 billion.
AIG and Berkshire are the first among the large property and casualty insurers to estimate the hit they may take from Katrina. Reuters notes that Allstate Corp. and State Farm Mutual Automobile Insurance Co., for example, have yet to estimate losses.