Hanover Insurance Estimates Q3 Catastrophe Loss of $66M

The Hanover Insurance Group, Inc. THG estimates third-quarter catastrophe loss of $66 million, pre-tax or $52 million after taxes. The loss estimate could be attributed to the company’s exposure to Hurricane Isaias and wildfires in California and Oregon.

The estimated figure takes into account $10 million, pre-tax, of favorable development in the prior-year period on several events from recent accident years.

In the third quarter, catastrophe losses are expected to be approximately 5.8% of net premiums earned, 100 basis point above Hanover Insurance's third-quarter catastrophe budget of 4.8%.

The company's scarcely increased catastrophe losses in the third quarter are expected to be offset by lower than expected ex-cat current accident year losses owing to moderating.

The Zacks Consensus Estimate for third-quarter earnings is currently pegged at $2.00 per share, which indicates a decline of 13.4% from the year-ago quarter’s reported figure. We expect estimates to move south once analysts start incorporating loss estimates into their numbers.

RMS, the world’s leading catastrophe risk solutions company, projects total insured losses from Hurricane Isaias for the United States in the range of $3-$4.5 billion.

Being a property and casualty insurer, Hanover Insurance is exposed to claims stemming from catastrophes, which significantly affect operations and financial condition. In the first half of 2020, total catastrophe loss surged 87.6% year over year to $185.7 million, primarily due to several wind and hail storms throughout the Midwest and Southeast, as well as from property damages related to riots and civil unrest in several major cities across the country. However, the combined ratio improved 20 basis points (bps) year over year to 95.7%.

Nonetheless, the company’s Commercial Lines and Personal Lines segments are primarily protected by a property catastrophe occurrence program, a property per risk excess of loss treaty as well as a casualty excess of loss treaty, with retentions of $200 million, $2 million, and $2 million, respectively.

The property catastrophe occurrence program provides coverage of up to $1.175 billion countrywide, minus a $200-million retention, with no co-participation, for all defined perils.

The company has enhanced analytics and risk management initiatives to manage climate change and catastrophe exposure. It uses facultative, property per-risk and catastrophe treaty reinsurance to mitigate possible impact from extreme events.

Shares of The Hanover Insurance have lost 30% year to date compared with the industry’s decline of 9.9%. Nevertheless, compelling product portfolio, widening specialty capabilities, strong market presence, strategic investments, effective cost control and a solid capital position should help shares bounce back.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cat Loss Estimates of Other P&C Insurers

Several property and casualty insurers are coming up with their third-quarter catastrophe loss estimates. RLI Corp. RLI and Palomar Holdings PLMR project third-quarter 2020 catastrophe loss of about $35 million to $45 million before taxes, net of reinsurance and pretax catastrophe loss of $34-$38 million, net of reinsurance, respectively. The losses can be attributed to Hurricane Hanna, Hurricane Isaias, Hurricane Laura and Hurricane Sally.

AXIS Capital Holdings Limited AXS estimates third-quarter 2020 pretax catastrophe loss in the range of $225-$255 million, stemming from Hurricanes Laura and Sally, the Midwest derecho, wildfires across the West Coast of the United States, the Beirut explosion and regional weather events in the United States.

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