Sandy Isn't Going to Destroy These Insurers

Hurricane Sandy was a nasty beast; in fact, it's quickly on track to become one of the nation's most destructive storms ever, in terms of property destruction. This, of course, means billions of dollars in insurance claims and depressed results for the insurance companies having to cover them. Luckily for Travelers (NYSE: TRV  ) and Hartford Financial Services (NYSE: HIG  ) , not all insurers will be hit as hard as some feared. But at least a few of their rivals will have to absorb much harder body blows.

Nice umbrella you've got there
If some of the recent damage estimates are accurate, Sandy could turn out to be the No. 2 most destructive hurricane in American history, in terms of total economic damage. According to research from forecasting company Eqecat, the total bill might come to as much as $50 billion. Meanwhile, estimates for insured losses range from $7 billion to $20 billion.

If Eqecat's numbers are right, Sandy would be right behind Katrina (total damage: $106 billion) and just ahead of 1992's Andrew, which took out big parts of Florida and the Bahamas.

With those numbers, you'd think that insurers are going to take a massive hit in the storm's wake. Not necessarily. Travelers said its losses from paying claims arising from the storm would amount to a net $650 million. Given the size of the company and the power of Sandy, that ain't much. The pre-tax, and pre-reinsurance estimate is $1.135 billion, meaning the company is well covered by the latter.

Travelers has dodged a powerful bullet. Now that it's not going to completely lose its shirt in the quarter, it's expressing its relief by paying its investors in the form of a share buyback program it suspended just after the storm wreaked its havoc. Clearly, the company was girding for a much worse 4Q than it's going to get.

The 5% jump the stock experienced the day the news was announced was the market's way of wiping its brow -- the Dow, by comparison, basically traded flat that day.

Hartford heartened
The smaller Hartford was up 3% on its own news; according to the company's initial estimates, it will have to fork over around $370 million. For an insurer of modest scope like these guys, that's a big number -- by comparison, its 3Q showed total written premiums for commercial property and casualty insurance of a little over $1.5 billion.

The company does catch a bit of a break, though. It's reinsurance starts to kick in at $350 million; above that level, it only has to pay 10% of the excess -- for example, if the total bill is $400 million, Hartford pays $355 million ($350 million plus 10% of $50 million).

If the company's current quarter ends up being anything like 3Q, that total's going to be manageable. It took in just over $6.4 billion, so in other words, its Sandy bill might come in at around 6% of top line.

If much or all of that loss feeds through into net profit, the hit will be harder, though, since the company's bottom line was a bit over $400 million in that quarter. Still, all things being equal, Hartford should still be able to eke out a profit or post a modest loss, no mean feat considering the scope of the disaster.

Lack of coverage
And what about the other guys? It's still early days, but already the winners and losers are already shaking out. Allstate (NYSE: ALL  ) said its tally would run to almost $1.08 billion after taxes and reinsurance. That's not a huge blast when compared to the premiums the company's been earning in recent quarters ($7 billion or thereabouts) and total revenues (a little over $8 billion in 3Q). But it's likely to plunge the company in the red, since its net was $723 million in 3Q and has averaged $659 million over the past four quarters.

AIG (NYSE: AIG  ) is bigger and more diversified than Allstate, Travelers, or Hartford. Good thing, too, as it estimates it'll get a $1.3 billion net slam from the hurricane. This isn't the end of the world for the company, which until now was doing surprisingly well for an enterprise that necessitated a $182 billion bailout from the government a few short years ago. The losses, however, will obliterate the $786 million-plus operating profit shown by AIG's key property casualty division so far in 2012. It will also impact net substantially -- the company posted a bottom line of $1.86 billion in 3Q.

Sandy was an awful freak of nature, and the destruction and loss she created will take a long time to sort out. As with those in and near the path of the hurricane, some insurers were luckier than others in escaping the devastation. Regardless, look for some depressed and occasionally negative net numbers for insurers when they post results for this quarter.

After bringing the financial world to its knees, most investors became wary about owning a stake in AIG, and Sandy isn't helping matters. But there is much to like about the firm. We'll help you determine whether AIG is a buy at today's prices in our premium analyst report on the company. Just click here now for instant access.

Editor’s note: This article has been edited to clarify information about Hartford's updated numbers.


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