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Chubb Halts Buybacks, Says Can't Estimate Sandy Cost

Source: WSJ - Erik Holm

Posted on 12 Nov 2012 by Neilson

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ChubbChubb Corp. (CB) said it was halting share repurchases because it hasn't been able to estimate its losses from the recent superstorm Sandy, the latest sign that insurers aren't yet aware of the true scope of the widespread damage across the Northeast.

Estimates of the insurance industry's potential losses from the storm have climbed significantly over the past two weeks, and industry executives now say claims could top $20 billion. At that price, Sandy would be at least the second most expensive hurricane in history, trailing only Hurricane Katrina's $41.1 billion.

But disaster-modeling company Risk Management Solutions Inc., the most widely used firm that attempts to measure the cost of catastrophic risks for the insurance industry, has warned that it's still too soon to accurately predict Sandy's final price tag.

"The event is still occurring from an insurance perspective, particularly in areas affected by coastal surge and among the hundreds of thousands of homes and businesses still without power," said Michael Kistler, director of model solutions at RMS, in an email Friday. There are still "deep uncertainties" about the effects of the storm, he said.

Chubb said its ability to assess its Sandy costs "could" be delayed by conditions in areas hardest-hit by the storm.

Chubb is among the companies identified by analysts and investors as having an outsized exposure to the storm. SNL Financial said Chubb ranked fifth for homeowners and commercial insurance in states that were most heavily affected by Sandy, and that the region constitutes about 10% of its total premiums in those lines of coverage.

A spokeswoman for Travelers Cos. (TRV), the third largest in the affected states, declined to say whether the company was slowing or stopping buybacks. A spokeswoman for Allstate Corp. (ALL), ranked second by SNL, didn't immediately comment. The two other insurers in the top five aren't publicly traded.

Chubb, based in Warren, N.J., sells business insurance and coverage for affluent consumers to protect their high-end homes, boats and other assets, including wine cellars and art collections.

Chubb said in a regulatory filing late Thursday it had temporarily ceased buying back its shares "to ensure compliance with applicable securities trading laws," an indication that it might have material information that it hasn't made public yet.

The filing said the company had halted the buybacks because "we currently are not able to provide an estimate of our losses related to Sandy," and said "conditions in some areas affected by the storm could delay" its ability to estimate its potential claims costs.

And it warned that it may not complete its current share buyback authorization by the end of January. That had been the company's intention as recently as Oct. 25, when it held a conference call to discuss third-quarter results.

On the call, Chief Executive Officer John Finnegan said the company's capital position is "excellent." Chubb is one of the higher-rated insurers in the U.S., with financial strength ratings of Aa2 from Moody's Investors Service and AA from Standard & Poor's and Fitch Ratings.

Analysts from Moody's said last week it would take about $50 billion in losses before most insurers began to feel a significant bite from the storm.

So far, no credible estimates have predicted that claims will approach that level, but the upper end of estimates from two disaster-modeling companies have jumped from $10 billion to $15 billion to $20 billion over the past two weeks. Executives from insurer XL Group PLC (XL) said this week that Sandy may cost the insurance industry even more than that.

During the first nine months of 2012, Chubb repurchased 12.7 million shares of its own stock for $907 million, an average of $71.23 per share. At the end of the third quarter, the company had about $357 million remaining under its current buyback authorization.

Shares of Chubb rose 0.4% to $74.77 in recent trading. The stock has dropped about 5% since Sandy struck.

Allstate CEO Tom Wilson said Nov. 1, three days after Sandy made landfall in New Jersey, that it was too soon to know how much the storm would cost his company, but said it "is not expected to have a material impact on our financial condition." He said the company had repurchased shares at a slower rate in the third quarter, as it tends to do during hurricane season.