The U.S. property and casualty insurer
) fears that Hurricane Sandy will damage its fourth quarter
earnings by approximately $880 million before tax or $570 million
after tax ($2.14 per share after tax). New York and New Jersey -
the areas most affected by Sandy - are two of the five states
where the company has largest exposure.
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These loss estimates are net of reinsurance. Chubb's significant
reinsurance protection has reduced the net loss position. Under
its reinsurance programs Chubb retains losses up to $500 million.
Its North American catastrophe treaty, supplemental catastrophe
reinsurance, and catastrophe bond provide coverage for roughly
65% of losses between $500 million and $1.65 billion for each
Prior to reaching the rough estimates for the cat loss, Chubb had
ceased its share repurchase program to pay for claims. Since the
company has a fair idea of the amount of loss it will incur from
Sandy it has resumed the share buyback program. Chubb will be
unable to complete the targeted buyback of $1.2 billion worth of
shares by January 2013, as earlier scheduled.
Despite being subjected to cat loss volatility, Chubb remains one
of our favored stocks in the property and casualty insurance
coverage. Its strong balance sheet, potential for solid book
value growth, and better-than-average underwriting performance
has shielded its earnings.
Sandy, one of the top-10 most expensive U.S. hurricanes for
insurers, has also hit
The Travelers Companies Inc.
), having a significant homeowners and commercial property
exposures throughout the East Coast. Furthermore,
The Allstate Corp.
), the second largest homeowners' insurance underwriter, has
substantial exposure to Sandy.
Despite causing huge insured losses, Superstorm Sandy will not be
able to change the industry pricing trend. Losses caused by it
are not large enough to reduce the huge surplus capital base of
the industry. Although the event will increase insurance pricing
for the affected lines in the impacted areas, a broad-based
hardening of rates is nowhere to be seen.
Additional details on the impacts of losses due to Sandy and
consequent update on share repurchase will be provided by the
company during its fourth quarter earnings release. Till then, we
maintain our long-term Neutral recommendation on the shares. The
stock currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating.