Catastrophe modelers have spent a lot of time analyzing theNortheast for windstorm risk, but Superstorm Sandy revealednumerous failings in the programs, resulting in significant lossesfor some insurers, says Fitch Ratings.

In a special report, “Hurricane Sandy Update,” Fitch says thestandout exposure during Sandy was the storm surge that itproduced. The storm, despite making landfall on the southern coastof New Jersey, produced record storm surge “associated withhurricanes of greater intensity. As a result, it was the floodingand not the wind that caused the most damage,” says Fitch.

Superstorm Sandy, which struck on Oct. 29, was no longerconsidered a hurricane when it struck; its status had been reducedto and extra-tropical cyclone by the time it struck the Easternseaboard.

The models, Fitch went on to say, did not capture the exposureto auto losses as sea salt water produced total loss to thousandsof cars, many new or vintage.

“Hurricane models typically produce low automobile losses underthe assumption that the majority of vehicles are driven away priorto the storm as part of the evacuation,” says Fitch.

The rating service notes that AIR estimates that more than230,000 automobiles were affected by the storm, producinginsured auto losses between $1 billion and $1.2 billion.

Fitch says that the industry will be reexamining its exposure tothe Northeast after back-to-back catastrophe years with HurricaneIrene in 2011 and Sandy last year. The nature of Sandy, producingso much destruction despite being a extra-tropical storm, willforce insurers to reevaluate their pricing and terms and conditionsof policies.

Fitch does not believe Sandy will be a market-changing event.However, it will help sustain the gradual rate increases thatinsurers have sought over the past few years, especially in regionsof the Northeast impacted by Sandy, where rate increases may besubstantial, says Fitch.

Fitch adds that overall losses will fall within the high-end ofloss estimates, reaching $20 billion and coming close to the $25billion mark. It says companies have reported losses ofapproximately $16 billion to $17 billion so far.

One reinsurance broker, Holborn, says the models are further offthe mark and total loss could be closer to $30 billion. That same figure was echoed by former Willis ChiefExecutive Joe Plumeri in a recent interview.

While a number of major companies have yet to report Sandylosses, such as State Farm, Berkshire Hathaway and Liberty Mutual,there have been some notable loss announcements.

Lloyd's of London estimates its net claims could fall between $2billion and $2.5 billion. American International Group put out apre-tax net loss estimate of $2 billion, partly because itsLexington Insurance Company provides excess insurance coverage tothe New York MTA.

The MTA says it suffered $5 billion in loss to itsinfrastructure of tunnels, bridges and transit system. The MTA saysit expects insurance recovery of $1.075 billion, which hasplacements with AIG and Lloyd's.

Fitch says that most insurance-company losses are a manageable7% or less of shareholder equity with an overall average of 3%.Only three companies were higher: Tower Group Inc. (8%), ValidusHoldings Ltd. (8.1%) and The Hanover Insurance Group Inc. (8%).

The rating service notes that all three companies grew byacquisitions in recent years, “resulting in increased exposure toNortheast U.S. catastrophe risk.”

Concerning ratings, Fitch says it “does not anticipate materialrating changes for individual property and casualtyinsurers.”

This article was originally posted at PropertyCasualty360.com,a sister site of Credit Union Times.