Hurricane Sandy’s Impact

Hurricane Sandy slammed into the New Jersey coastline on Oct. 29, bringing 80 mph winds and hurling a record-breaking 13.88-foot surge of seawater.

Following the storm’s landfall, more than 7 million residences and businesses lost power across 15 states. Thousands of flights were cancelled, and numerous businesses and industrial plants in the Northeast suspended operations, which could lead to business interruption and contingent business interruption claims in coming days, on top of extensive property damage claims in the region.

As Insurance Journal went to press, Oakland, Calif.-based catastrophe modeling firm Eqecat estimated that industrywide insured losses could be in the range of $5-10 billion, with overall economic damages of $10-20 billion. And Silver Spring, Md.-based hazard-research firm Kinetic Analysis Corp., estimated insured losses in the range of $7-8 billion.

On page 20, we have more stories on the expected insured losses and their potential impact on the property/casualty insurane industry.

Loretta Worters, vice president at the Insurance Information Institute, said loss estimates will get more refined in coming days, as insurers begin to make assessments.

For comparison with past events, Hurricane Irene had a similar path and caused an estimated $4.3 billion in insured damage to 14 states – enough to rank the storm as the 10th-costliest in U.S. history. Analysts say Sandy’s losses are likely to surpass Irene’s.

The Insurance Information Institute’s Worters noted that through the third quarter of 2012, catastrophe losses were down about 40 percent industrywide, so losses for the year could still end up below the 2011 level. She also assured that the P/C insurance industry has the capacity and financial resources to pay these claims in coming days.

Indeed, financial analysts say insured losses from Sandy, even if they reach $10 billion, would have little impact on the industry as a whole. But some individual companies could see their earnings tumble.

For instance, Credit Suisse studied major publicly traded insurers’ market share, reinsurance programs and historical losses and published their forecast last week. Before Sandy, Credit Suiss had $1.66 per-share profit forecast for Chubb’s fourth quarter. Now, using an assumption of $10 billion industrywide insured losses, the firm is expecting a net loss from the insurer. Credit Suisse had previously forecast $1.02 per-share fourth-quarter profit from Allstate. Now, Allstate might barely break even for the quarter. Travelers’ profit forecast was revised down 40 percent.

It was just a few weeks ago that Travelers CEO Jay Fishman warned us about unpredictable weather. “Notwithstanding the benign weather we saw in the third quarter, Mother Nature seems to be increasingly unpredictable,” he said during the Oct. 18 earnings call.

He now has Sandy to prove his point.