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Tower Group: Sandy Easily Largest Catastrophe In Company's History

Posted on 09 Nov 2012 by Neilson

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Tower GroupTower Group Inc., which sells substantial amounts of home insurance in the states hardest hit by superstorm Sandy, predicted losses from the storm could reach $68 million, an amount that would hurt fourth-quarter earnings but wouldn't substantially impact its capital base.

Chief Executive Michael Lee said Thursday that Sandy was "easily" the largest catastrophe in Tower Group's history. But the company had purchased increased reinsurance after last year's Hurricane Irene, which will help keep the costs contained, he said.

"We are confident that our capital position for the year will not be materially impaired," Mr. Lee said on a conference call with analysts and investors. In fact, he said, the insurance market in the Northeast "should improve substantially," creating "upside for us" in the wake of the storm.

"You can anticipate that we'll be seeking rate increases," he said. "We see an opportunity to grow our business and achieve a greater level of profitability."

Mr. Lee said the company was likely to end the year with a book value about equal to its book value at the end of the second quarter. He predicted earnings growth would resume in 2013.

Tower Group had attracted scrutiny from investors in the days since Sandy unleashed its fury on the Northeast because of the company's outsized exposure in the states hardest hit by the storm. Before Thursday, shares had fallen about 6.5% since stock markets re-opened after the storm on Oct. 31, but they rose 3.5% to $18.19 in morning trading on Thursday.

The company released a description of its reinsurance program last week to show investors it had arranged to share losses with reinsurers. On Wednesday night, the company provided additional details, saying its after-tax estimate of its own costs tied to Sandy ranged from $55 million to $68 million.

Among the protections it purchased were so-called industry loss warrants, which pay out when the insurance industry's total losses cross pre-determined thresholds. The company said Thursday the loss warrants would pay Tower $10 million if industry losses exceed $10 billion, and another $10 million if they exceed $15 billion.

Disaster-modeling firms have so far predicted insured losses could go as high as $20 billion.