Year-End Storms Cloud P/C Insurers’ Results

U.S. property insurers like Travelers Cos. Inc. and Chubb Corp. were expecting a relatively mild fourth quarter for catastrophe losses, but a series of punishing storms across the country in December may have blown away those estimates.

Floods in Southern California, a blizzard in the Northeast and deadly tornadoes in the South lashed the country during the holiday season. Add to that a storm in early October that roiled the Midwest and South and ranks as one of the five worst for the year, and some of the more optimistic estimates may be endangered.

“I don’t think you can have the almost nationwide type of severe weather we had without it having an impact,” said Craig Fehr, an analyst at Edward Jones.

Fehr said he was already expecting combined ratios to rise in the fourth quarter. The storms are likely to push those ratios even higher, meaning lower profitability.

Going into the last three months of the year, most of the major property insurers forecast relatively limited catastrophe losses and raised forecasts for the year as a result. Having dodged a bullet during hurricane season, they had little reason to expect anything worse over the holidays.

Instead, Los Angeles got six months’ worth of rain in a couple of weeks, New York and New Jersey saw one of the five worst snowfalls of the last century, and parts of Arkansas and Missouri were hit by twisters that struck in the one week of the year when they were least expected.

Those storms followed a major Minnesota blizzard earlier in the month and a number of other storms during the quarter, including early-October tornadoes that caused nearly $1.5 billion in insured losses.

While official damage estimates are still hard to come by, anecdotal evidence suggests they could be substantial. Reports out of Southern California alone suggest damages of more than $70 million just from floods.

“Our sense is there is still risk of higher-than-modeled (fourth quarter) weather-related catastrophe losses for the commercial lines insurers, and to a lesser extent the personal lines insurers, based on the December blizzard impacting the East Coast as well as the Southern California rainstorms,” said Barclays Capital analyst Jay Gelb.

The fourth-quarter weather events appear to be far outside the usual trend. According to the Insurance Information Institute, fourth-quarter cat losses were $205 million in 2009, down from $275 million in 2008.