Insurers with Largest and Least Earnings Risk from Hurricane Sandy

The preliminary estimates for the damage of Hurricane Sandy seem to be coming in the $5 billion to $10 billion range. This of course can grow, but this is what we have seen so far. A great report was put out during the storm warnings by Credit Suisse which showed which property and casualty insurers, as well as some reinsurers, which have the most and least earnings exposure due to this storm.

The base case in the report was up to $10 billion in storm damages, with the possibility that the damages could reach up to $30 billion. We would note that this did not exactly target the safest insurers by and large, and the report also was not the basis for actual firm ratings of Outperform, Neutral and Underperform. Credit Suisse outlined the insurers including ACE Limited (NYSE: ACE), Allstate Corp. (NYSE: ALL), Chubb Corp. (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 with less than 25% earnings exposure were listed as Progressive Corp. (NYSE: PGR) and Ace Limited (NYSE: ACE). On the flip side, Hartford Financial Services Group Inc. (NYSE: HIG) could face more than an 80% loss to earnings. And companies such as Arch Capital Group Ltd. (NASDAQ: ACGL) and Allstate Corp. (NYSE: ALL) could lose over 90% of their projected fourth-quarter earnings per share under the scenarios. The Chubb Corp. (NYSE: CB) had the most exposure as it could face losses equating to more than 100% of its projected fourth quarter earnings. Here is a table compiled by Credit Suisse  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.

Credit Suisse pointed out that only Katrina and Andrew have caused an insured loss of over $20 billion (Katrina $48B; Andrew $25B). 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.

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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