Storm front. (Editor's Prologue).

On Aug. 24, 1992, Hurricane Andrew made landfall on the southern tip of Florida, just south of Miami. Soon after, catastrophe modeling as we know it began in earnest.

Models were around before Andrew, but few could have accurately predicted the damage caused by the massive tropical cyclone. The insured losses from Andrew were about $15.5 billion (more than $18 billion in today's inflation-adjusted dollars).

Since Andrew--which had been considered the largest insured event on U.S. soil until the Sept. 11 terrorist attacks--more than $15 billion in new residential and commercial construction has occurred in Miami-Dade County in South Florida. And experts predict that if a similar storm were to hit South Florida today, insured losses could go as high as $30 billion. (See "Storm Warning," page 20.)

Although the losses would be greater, insurers are better prepared today, because the catastrophe models are better. The modelers learned much from Andrew, which packed sustained winds of 140 mph and gusts up to 175 mph and damaged or destroyed more than 100,000 homes. Today, sophisticated computer simulations and information gathered from past storms are helping to model future losses.

But even the most comprehensive models cannot begin to predict what the losses would be for a high-impact, low-probability catastrophe, such as a giant tsunami striking the East Coast of the United States or a large asteroid or meteorite hitting a heavily populated region. (See "Waiting in the Wings," page 30.)

Such events cannot be modeled, because insurers have no historical record, said David Simmons, head of risk consultancy at London-based Benfield ReMetrics, the analytical and alternative-risk-transfer arm of Benfield Group. "If an asteroid slammed into the mid-Atlantic [Ocean], I think the last thing we'll be worrying about is our insurance recovery," he said. "It would be far more catastrophic than that."

Still, since the events of Sept. 11, insurers have begun to think about the unthinkable. The next catastrophe could be the biggest yet, and the industry must be prepared if it is to survive.

David Hilgen is editor. You may reach him at [phone], Ext. 5038, by writing to A.M. Best Co., Ambest Road, Oldwick, NJ 08858, or by e-mail at [e-mail]. The e-mail address for Best's Review is [e-mail].