Insurers’ Profits to Take Hit From Hurricanes

The four hurricanes that struck Florida since last month were expected to result in losses of $15 billion to $20 billion, the largest hurricane-related hit in more than a decade, according to the industry’s preliminary calculations.

“It’s going to be a significant adverse effect on the third-quarter and full-year earnings,” said David Anthony, senior insurance analyst with Argus Research in New York. “All the big companies will be significantly affected.”

Third-quarter profits could be down 40% to 60% for insurers, Anthony said. Some firms could see their quarterly earnings wiped out, said Jeff Thompson, vice president of Keefe, Bruyette & Woods in Hartford, Conn.

The hurricane season could lead to a modest increase in insurance costs, Thompson said, and may raise questions about the level of exposure some companies have in Florida.

But the hurricanes are not expected to have the same effect on the industry as Hurricane Andrew in 1992, when about a dozen companies went out of business. That storm led to a series of reforms, including more deductibles, better risk assessments, strong reserves and a hurricane fund in Florida, that have spread out the risk of losses, experts say.

“Combined, there is a lot of money involved, but it’s not something we haven’t anticipated for,” said Loretta Worters, vice president of the Insurance Information Institute. “We’re very confident we’re able to pay the claims without any difficulty.”

The losses could have been even more severe if one of the hurricanes had hit a densely populated area such as Miami, Worters said.

St. Paul Travelers Cos. estimated losses of more than $200 million from Hurricanes Charley and Frances alone. That will cut earnings by 31 cents a share in the third quarter, the company said.

Hartford Financial Services Group has estimated its losses at $140 million for Hurricane Charley, but would not provide estimates for the latest storms.

W.R. Berkley Corp. in Greenwich, Conn., estimated as much as $15 million in losses for three of the hurricanes. General Electric Co. in Fairfield, Conn., was analyzing its losses.

“We certainly will have losses,” said Dean Davison, spokesman for GE Insurance Solutions. “These are big events and we’re trying to get as accurate a calculation as we can.”