Experts see manageable storm costs for insurers
As Hurricane Sandy barreled up the East Coast Monday, analysts who cover the insurance industry expected the losses to be manageable, even if it's too early to estimate the final costs.
Insurers could even absorb damages as big as those caused by the country's most expensive storm, Hurricane Katrina, they said. The industry took $74.7 billion in losses from that Category 3 hurricane. By comparison, Sandy is a Category 1 storm.
Many are using Hurricane Irene as a point of comparison. That storm cost insurance companies roughly $5 billion after it hit last year, according to Sterne, Agee & Leach Research.
Last year was an unusually rough one for natural disasters in the U.S., said Chris Hackett, director of personal lines policy at Property Casualty Insurers Association of America, or PCI. It started with a terrific winter snow storm, then tornadoes in Alabama and Missouri, followed by unusual earthquakes in Oklahoma and Virginia and Hurricane Irene along the East Coast.
Cliston Brown, director of public affairs at PCI, guessed that Hurricane Sandy would probably be the biggest hurricane to hit the New York area since the 1938 hurricane known as the Long Island Express, among other nicknames.
Still, they think the insurance industry is financially prepared for Hurricane Sandy. This year has been relatively easy on insurers.
"We were able to collect adequate premiums and charge adequate rates," Hackett said. "This year we haven't seen quite so many incidents as we did last year."
U.S. insurers have more than $500 billion in capital, according to Morgan Stanley. That gives them enough of a cushion to withstand losses from most scenarios.
"It's just too early to predict damages," said Greg Locraft, an insurance analyst at Morgan Stanley, in an interview Monday. "It's top-to-bottom the biggest storm. But it's not as strong as Katrina."
Because the storm is heading toward a major population center with "one of the highest concentrations of wealth in the world" the damages are likely to run into the billions, Locraft wrote in a research note Sunday.
Locraft said insurers' fourth-quarter earnings could take a hit if losses are anywhere near those from Irene. Their budgets for catastrophes are smaller toward the end of the year than in the third quarter, usually the height of hurricane season.
Chubb, Allstate and Travelers are the insurers most likely to suffer losses, Locraft said, because they claim a large share of the market in areas where the storm looks likely to hit. If losses top $10 billion, global reinsurance companies would also take a hit.