* Loss estimates expected Tuesday at earliest
* Analysts say industry has ample capital
* Little impetus for price increases likely
By Ben Berkowitz
Oct 29 Hurricane Sandy has the potential to
cause some of the largest losses the global insurance industry
has faced this year, but nothing that would strain insurers
financially aside from hurting earnings this quarter, according
Disaster modeling company Eqecat, used by the industry to
forecast storm exposure, said on Monday that Sandy was likely to
cause anywhere from $5 billion to $10 billion in insured losses,
a preliminary forecast that could change after the storm makes
But because disaster losses in general have been much
smaller this year than last year, financial analysts said
insurers were well placed to handle the inevitable claims, even
if they exceed last year's $4.3 billion in losses from Hurricane
"With $500 billion-plus of capital ... we expect the
(property and casualty) industry is once again well prepared to
pay all Frankenstorm insured losses," Morgan Stanley analyst
Gregory Locraft said in a report on Monday, using the nickname
for the Sandy-nor'easter combo.
While 2011 set global records for disaster losses of about
$100 billion, mostly due to U.S. tornadoes and Asia-Pacific
earthquakes, losses this year are a small fraction of that.
Reinsurer Munich Re estimated this summer that worldwide
disaster losses were just $12 billion in the first half of 2012.
That meant even a $10 billion hit from Sandy could end up
being the most sizeable loss for the industry this year.
But with capital abundant, Locraft and others said the
biggest impact on the industry may be in fourth-quarter
earnings. Insurers budget for a much smaller volume of
catastrophe losses in the fourth quarter than in the third
period, which is the more typical window for hurricane damage.
Locraft said losses of about $5 billion would hurt earnings
for large property insurers like Chubb Corp, Allstate
Corp and Travelers Cos Inc, while losses around
$10 billion would also affect the large global reinsurers.
EUROPE UNDER PRESSURE
"The causes for loss from this storm are likely to be a
relatively broad area of tropical storm-force to some
hurricane-force winds, as well as flooding," said Michael
Kistler, a product manager at RMS, another of the modeling
companies relied on by insurers.
"In Hurricane Irene, while we expected the storm to maintain
strength, it actually weakened significantly ... whereas
Hurricane Sandy by all respects has had the perfect timing of
everything lining up."
Major European players like Lloyd's of London and
Swiss Re said it was far too early to comment on loss
impacts they may face, though investors sold shares on the mere
prospect of Sandy's impact.
The STOXX 600 European insurance sector was one of
the worst-performing equity indexes in Europe Monday on exposure
fears, shedding 1.5 percent.
"I think it's fairly natural that the market's fretting a
wee bit in terms of potential exposure," said Shore Capital
analyst Eamonn Flanagan.
Nonetheless, Maryland-based analyst Meyer Shields of Stifel
Nicolaus said in a note late Sunday that Sandy could cost more
than Irene because of stronger winds, but was still manageable.
"Since we're located squarely in Sandy's expected path, we
understand the inconvenience, frustration and in many cases,
financial burden Sandy will impose on many Northeastern
residents, but after an uncharacteristically catastrophe-light
(third quarter), we think the industry can easily absorb $5
billion in insured losses from Sandy," Shields said.
LITTLE BOOST TO PRICING
Sandy's impact will inevitably lead to questions about the
effect on insurance pricing, which has been rising for the last
year or so.
Insurers suffered years of price weakness amid a relatively
mild disaster climate, with rates in late 2010 and early 2011
dropping to levels last seen around the year 2000.
The catastrophes of 2011 changed that, and big insurers like
Travelers have been steadily boosting prices in the
high-single-digit percentage range each quarter since.
But Shields said it was unlikely Sandy would have enough
impact to accelerate price increases for the sector. For a
single event, analysts and insurers usually talk about a $50
billion loss as the kind of hit that would instantly raise
pricing across the board.
Peers agreed that Sandy was unlikely to add any impetus to
price gains, though it would not hurt, at a minimum.
"We do not expect a meaningful impact on commercial and
reinsurance pricing levels, but the psychology of another large,
unusual storm certainly should not hurt the pricing tone on the
margin. An already very firm homeowners marketplace will only
get firmer," said Larry Greenberg, an analyst at Janney Capital
Markets unit Langen McAlenney.