Hurricane Sandy could lead to catastrophe model changes and numerous business interruption claims, said W. Marston (Marty) Becker, president and chief executive officer of Alterra Capital Holdings Ltd., while discussing the firms third-quarter earnings during a conference call.
Sandy's an interesting storm, Becker said. I wouldn't be surprised if Sandy doesn't cause some model correction. It really was a confluence of a classic perfect storm. He pointed to the timing of the hurricanes landfall near high tide, the storm that combined with it and how it hooked west to make landfall in New Jersey.
Alterra has not yet released estimates of its Sandy losses, as Becker said it too early to have a good sense of those figures. He noted there are still people without power in the Sandy-hit areas.
The emphasis will be on classic commercial property and we do have a high-value homeowners account, so there will be claims there as well, Becker said of Alterra's expected claims from the hurricane.
He said he does expect a lot of business-interruption exposure, industrywide.
Early estimates said the storm's insured losses were likely to range from $10 billion to $20 billion (Bests News Service, Nov. 1, 2012). Tom Teixeira, a practice leader at Willis Global Solutions, previously said he is certain there will be large business interruption losses because of power failure to suppliers, a situation leading to full or partial production stoppages (Bests News Service, Nov. 2, 2012).
Alterra's third-quarter net income was $37.7 million, down from $48.4 million last year. The combined ratio rose to 99.9 from 87.7. Net income was impacted by property catastrophe net losses of $15 million, principally in the U.S. insurance segment from Hurricane Isaac, compared with losses of $42.1 million last years third quarter. The company also had net underwriting losses of $22.5 million on agriculture reinsurance, as it previously announced (Bests News Service, Oct. 16, 2012).
Two experts at the University of Illinois, Gary Schnitkey and Bruce Sherrick, said in August that crop insurers and their reinsurers will face drought-related losses this year of roughly $18 billion.
Alterra's net premiums written decreased 11.1% to $262.1 million due to increased property reinsurance premiums ceded in order to manage aggregate property exposures across all segments, the company said. This was partially offset by growth in gross premiums written in the global insurance and U.S. insurance segments.
The company has been adding long-tail business teams in preparation for an anticipated hardening of rates and growth in the segment. It is a little bit detrimental to the expense ratio while you are doing it, Becker said, but having those teams in place will benefit the company in the long term.
Were at a critical point in the cycle where conditions are starting to improve, he noted.
We are pleased to see some movement on rate in our longer-term lines, said Joe Roberts, executive vice president and chief financial officer. But it is still below some of the rates we have seen in the past. He said the company continues to be disappointed with casualty reinsurance pricing.