The Most and Least Exposed Insurance Earnings Risk from Hurricane Sandy

Source: flickr / gsfc
Earlier today we outlined some of the risks which were seen in overseas trading of the Property & Casualty (P&C) insurance sector and for the reinsurance sector. Now we have seen some larger and much more specific estimates in the worst case and in the base case scenario for insurers due to Hurricane Sandy which were published by Credit Suisse. The earnings damage is put at up to a $30 billion storm cost in the extreme case, but the firm lists a base case scenario of under $10 billion with “considerable uncertainty at this point.”

Be advised that this research report does not exactly target the safest insurers by and large and is not the basis for actual firm ratings of Outperform, Neutral, and Underperform.

Credit Suisse pointed out that only Katrina and Andrew have caused an insured loss of over $20 billion (Katrina- $48 B; Andrew- $25 B). Irene was noted as having a similar path as Sandy causing some $4.3b to $5.0 billion of insured losses. Hurricane Ike caused $13 billion, Wilma caused $12 billion, and Charley caused $9 billion.

Credit Suisse outlined the insurers including ACE Limited (NYSE: ACE), The Allstate Corporation (NYSE: ALL), The Chubb Corporation (NYSE: CB), Cincinnati Financial Corp. (NASDAQ: CINF), Progressive Corp. (NYSE: PGR), The Travelers Companies, Inc. (NYSE: TRV), XL Group plc (NYSE: XL), Arch Capital Group Ltd. (NASDAQ: ACGL), Aspen Insurance Holdings Ltd. (NYSE: AHL), Validus Holdings, Ltd. (NYSE: VR), PartnerRe Ltd. (NYSE: PRE), Platinum Underwriters Holdings Ltd. (NYSE: PTP), American International Group, Inc. (NYSE: AIG), and The Hartford Financial Services Group, Inc. (NYSE: HIG).

Insurers such as Progressive Corp. (NYSE: PGR), Progressive Corp. (NYSE: PGR), and Ace Limited (NYSE: ACE) are all expected to lose less than 25% of their fourth quarter earnings under the first scenario. Sadly, Hartford Financial Services Group, Inc. (NYSE: HIG) could face more than an 80% loss to earnings, Arch Capital Group Ltd. (NASDAQ: ACGL) and The Allstate Corporation (NYSE: ALL) could lose over 90% of their projected fourth quarter earnings per share, and finally The Chubb Corporation (NYSE: CB) could face losses equating to more than 100% of its projected fourth quarter earnings.

Here is a table showing the “potential earnings per share impact” if the hurricane and storm damages reach $10 billion:

Credit Suisse said, “We anticipate reinsurance to start kicking in for Allstate and Chubb when industry losses approach $20-$30bn. In addition, Travelers’ reinsurance program has a minimum retention of $1.5 billion, compared to $500 million for Allstate and Chubb. Therefore, we do not expect Travelers to have much reinsurance protection in the event that Sandy losses are under $10 billion.” Credit Suisse also said that its loss estimates for reinsurers are said to be much less scientific.

As you can tell this is just one report and from just one firm. Estimates may likely vary greatly from source to source.


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