There appears to be little doubt that Hurricane Rita will be a major catastrophic storm as it heads for the Texas coast, possibly whacking the energy industry again and heaping anxiety on an already concerned insurance market.
State officials have mandated evacuations from coastal cities in the region, and Texas Gov. Rick Perry has already declared a state of emergency. He has ordered the Texas National Guard to return from relief efforts in Louisiana and requested that federal troops to be available in the aftermath of the storm.
Rita, now a category-4 on the Saffir-Simpson scale, at one point reached sustained winds near 165 mph, a category 5, according to the National Weather Service. A 2 p.m. EDT advisory said wind speed dropped to 150 mph, but cautioned it would remain a dangerous hurricane as it reached landfall. Storm surge could reach 15 to 20 feet under these conditions, the Weather Service said, with rain accumulation between eight and 12 inches. Winds extend to 185 miles from Rita's center.
A hurricane warning has been issued from Port O'Connor, Texas, to Morgan City, La. as of early this afternoon. Located between these points is Galveston and Houston, Texas, which could take the brunt of the storm, according to Weather Service projections.
Katrina sent jitters through the insurance market, and Rita will only compound the concern for insurers dealing in the energy industry, said Bruce Jefferis, managing director of Aon Natural Resources. He spoke from his home in Texas as he and his family made ready for Rita, considering their own evacuation plans depending on the course of the storm.
Unlike Katrina and Ivan, which tore through the Gulf and damaged undersea pipes and oil rigs, more of a concern is the concentration of refineries along the Houston shipping channel. Current projections have the center of Rita striking to the East of Houston. A strong storm surge, backing up the channel, could cause serious flooding to the refineries, which, according to one report, accounts for 13 percent of U.S. oil consumption.
"There's all sorts of bad news in this storm," he pointed out.
Recent meetings Mr. Jefferis attended with reinsurers in Europe, underscored concerns among insurers on coverage for this sector. The losses from Hurricane Katrina, if they work out to overall insurance industry loss estimates of between $40-billion to $60-billion, could result in insurance capacity losses of 25 percent in the energy sector. This could translate to corresponding rating adjustments of the same.
He emphasized, however, that the discussions were highly speculative, but underscored the growing concern insurers are having over these catastrophic events.
"The market is already concerned about Katrina, and you add Rita, it obviously magnifies it," he said.
This morning, Oakland, Calif.-based modeler Eqecat, put out an estimate that offshore oil and gas industry insured losses from Katrina at between $5-billion to $8-billion.
When asked if the refineries are prepared, he took a deep breath and said, "I think they are as prepared as they can be, but you don't know until it happens."
Mr. Jefferis added that, "Our best hope is that it lessens to a category 4 or 3, but there is no good place for it to hit."
In a report released today by AIR Worldwide Corporation, based in Boston, the modeler said the insured property value along the coast of Texas stands at $740 billion. It is only one of three states with insured property value of more than $700 billion. New York and Florida are the other two.
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