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Fewer Catastrophes Impact Property/Casualty Insurers in Third Quarter

Source: A.M. Best

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Posted on 25 Oct 2012 by Neilson

Cat lossesCatastrophe damage estimates for the third quarter released by some publicly traded property/casualty insurance companies indicate slimmer losses than in previous third quarters due to fewer cats. One of the earliest major insurance companies to report earnings posted a significant drop in cat losses.

The third quarter is the height of hurricane season, but only one made landfall in the United States in that time. Hurricane Isaac was the highest profile cat of the quarter and insured damages have been estimated at about $1.5 billion.

"Other than Isaac, it looks relatively mild," said Raymond Thomson, an A.M. Best Co. senior financial analyst. "There was some hail and some tornadoes, but Isaac was the main event for the quarter."

The quarter had the potential to be troublesome for U.S. property/casualty insurers. Jayanta Guin, senior vice president of research and modeling at AIR Worldwide, said the hurricane season has been busy and active in the open waters of the Atlantic Ocean but the United States was fortunate that only Isaac made its way to land.

Insurance broker Aon, which issues a monthly roundup of catastrophes, reported payouts in excess of $275 million in July due to Midwest storms and insured damages of at least $125 million from tornadoes in September. The only losses reported in August were those from Isaac. One catastrophe that has been developing for the past two quarters has been crop losses from the severe drought, Guin said, adding that those losses will like tally $13 billion to $20 billion in insurable damages and be a "major loss."

Travelers Cos., one of the earliest major companies to report third-quarter earnings, said its catastrophe losses were down 85% from the prior-year quarter to $91 million, pretax. Fewer catastrophes and lower losses were one factor specifically cited when the company posted net income for the most recent quarter of $864 million, which is a 159% increase over the prior-year.

Other major property/casualty companies are gearing up to release earnings and some have offered a glimpse into their cat loss expectations, with State Auto Financial Corp. expecting cat losses up to $7.5 million, compared with $60.8 million in the prior-year quarter and $23.7 million in the third quarter of 2010, according to company figures.

Allstate Corp. has been silent with its catastrophe loss estimates in the third quarter. The company last year began releasing monthly loss estimates when losses surpassed $150 million. Allstate last released a cat loss estimate in July when it anticipated losing $440 million to cats in June. The company was scheduled to release estimates Oct. 18, but did not.

Progressive Corp., which issues financial results monthly, has disclosed $48 million in losses for July and August, but did not release estimates for September. The company has declined to identify threshold for reporting. The company in the prior-year quarter lost about $63 million on catastrophes, according to a filing with the U.S. Securities and Exchange Commission.

Michael Kistler, director of model solutions for catastrophe modeling firm RMS, said the third quarter and the first two quarters has been "so much quieter" than 2011 for financial loss due to catastrophes. The third quarter of 2011 brought with it Hurricane Irene and the Virginia earthquake.

"If you think of where we were standing for the year at this time in 2011, we already had quite a bit of disasters occur," Kistler said. "This year has been a lot quieter."

Losses from Isaac are expected to hover around $1.5 billion, but that amount is no match for previous hurricanes. Irene, which struck during the third quarter of 2011, racked up about $4.9 billion in insured losses.

Kistler said Isaac struggled to develop until just before landfall. The majority of issues caused by Isaac were from flooding because it was a slow moving storm that dropped torrential rain on Louisiana and Mississippi. He said the windspeeds associated with Isaac were "not particularly severe as far as a hurricane goes."

Isaac's losses are on par with damage from tornadoes and hailstorms in the Midwest earlier this year, Thomson said.

"In recent years, especially in Texas and the Midwest, it has been very tough there," Thomson said. "A lot of hailstorms, tornadoes along with the intensity, the frequency, the severity they have made it very difficult for the past four or five years."


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