Sandy: Insurers could take hit of $10bn

Hurricane Sandy has the potential to cause some of the largest losses the global insurance industry has faced this year, but nothing that would strain insurers financially, aside from hurting earnings this quarter, analysts said.

Disaster modelling company Eqecat, used by the industry to forecast storm exposure, said there was no way to assess what kind of losses Sandy might ultimately cause until after landfall.

But because disaster losses in general have been much smaller this year than last year, financial analysts said insurers were well placed to handle the inevitable claims, even if they exceed last year’s $4.3bn (€3.3bn) in losses from Hurricane Irene.

“With $500bn-plus of capital... we expect the [property and casualty] industry is once again well prepared to pay all Frankenstorm insured losses,” Morgan Stanley analyst Gregory Locraft said in a report yesterday, using the nickname for the Sandy-nor’easter combo.

While 2011 set global records for disaster losses of about $100bn, mostly due to US tornadoes and Asia-Pacific earthquakes, losses this year are a small fraction of that.

Reinsurer Munich Re estimated this summer that worldwide disaster losses were just $12bn in the first half of 2012.

That meant even a $10bn hit from Sandy could end up being the most sizeable loss for the industry this year.

However, with capital abundant, Locraft and others said the biggest impact on the industry may be in fourth-quarter earnings.

Insurers budget for a much smaller volume of catastrophe losses in the fourth quarter than in the third period, which is the more typical window for hurricane damage.

Locraft said losses of about $5bn would hurt earnings for large property insurers like Chubb Corp, Allstate Corp, and Travelers Cos Inc, while losses of about $10bn would also affect the large global reinsurers.