By Jamie McGee
Sept. 30 (Bloomberg) -- Insurers including Warren Buffett’sBerkshire Hathaway Inc. and American International Group Inc. benefited from the absence of third-quarter storms this year after paying $12.5 billion in claims on Hurricane Ike in 2008.
The hurricane season has yielded a single U.S. landfall, Tropical Storm Claudette, which struck Florida last month. By this time in 2008, Hurricane Dolly had hit Texas, Gustav came ashore in Louisiana, Tropical Storm Hanna swiped the Carolinas and Ike lashed nine states, killing more than 100 people.
The calmer quarter will boost results for insurers after the recession eroded the value of their holdings and caused customers to reduce spending. The storms last year contributed to the industry’s $9.9 billion net loss in the third quarter, according to Insurance Services Office Inc.
“The insurance companies are going to have just phenomenally good earnings this quarter because of the lack of hurricanes,” said Michael Paisan, an analyst at Stifel Nicolaus & Co. Also, he said, “you are going to get some boost from the financial markets” as insurers’ portfolios recover.
The Atlantic hurricane season lasts from June 1 to Nov. 30, with the greatest activity usually in September, the National Oceanic and Atmospheric Administration said on its Web site. The season has so far defied NOAA’s May prediction of four to seven hurricanes. Bill and Fred have been the only hurricanes to form in the Atlantic this year. Both missed the U.S.
“The last time we had a year that quiet was in 1997,” said Jeff Masters, director of meteorology at Weather Underground Inc., an Internet weather service based in Ann Arbor, Michigan. “As far as damage goes, you can pretty much say coastal erosion from Bill is all we’ve had.”
The 2008 hurricane season was the most expensive since 2005, when Katrina, Wilma and Rita contributed to more than $60 billion in U.S. catastrophe claims, according to ISO.
The industry also paid out last year after wildfires in California and a record number of tornadoes in the first six months. This year, about 1,057 tornadoes have struck the U.S., down about 34 percent from the first nine months of 2008, according to preliminary data from the National Weather Service. This year’s tally may drop further when the service investigates storm data and compiles official statistics.
Paisan said companies with the greatest reliance on property coverage will benefit the most from the decline in disasters, including Allstate Corp., Travelers Cos., and Warren, New Jersey-based Chubb Corp.
Allstate, the largest publicly traded home insurer in the U.S., had $1.82 billion in catastrophe losses in last year’s the third quarter. Travelers, the insurer added to the Dow Jones Industrial Average, reported $1.04 billion in catastrophe costs in the same period.
Returning to Profitability
Allstate is expected to post a third quarter operating profit of 88 cents a share, compared with a loss of 35 cents in the same period a year earlier, according to the average estimate of 14 analysts surveyed by Bloomberg. Operating results exclude some investment gains and losses. The Northbrook, Illinois-based insurer has declined 5.6 percent this year through yesterday in New York Stock Exchange composite trading.
Allstate “is among the most levered to the financial markets and exposed to weather-related losses,” Paul Newsome, an analyst at Sandler O’Neill & Partners, said in a Sept. 28 note to clients. “The third quarter is shaping up to be a very good quarter for investment results and a good quarter for weather-related losses.”
Travelers is expected to report a profit of $1.20 a share, up 65 cents from the same period last year, according to the average estimate of 15 analysts. The New York-based insurer’s shares gained 8.3 percent this year.
AIG, which was rescued by the U.S. last year with a bailout that swelled to $182.5 billion, is expected to report operating earnings of 24 cents a share, compared with a loss of $68.40 dollars a share in the year-earlier period, according to the average estimate of three analysts surveyed by Bloomberg. AIG, also one of the world’s largest life insurers, has gained 44 percent since Dec. 31.
Berkshire, which typically gets about half its profit from its insurance units, is expected to report operating earnings of $1,176 a share, down $159 from the same period last year, according to the average of two analysts’ estimates. Berkshire also has units that sell mobile homes, manufacture jewelry and run power plants. The Omaha, Nebraska-based company has climbed 5.1 percent this year.
A drop in hurricane claims, along with improved equity and credit markets, will temper insurers’ ability to increase prices, Paisan said. Rates may fall as much as 10 percent when companies renew their insurance agreements in 2010, he said.
Fewer hurricanes “doesn’t necessarily bode well for the economics of the insurance industry, because now you’ve got no claims, which means you don’t have any pricing power,” Paisan said. “Your capital, or supply, is up, so that’s going to cause pressure on pricing.”
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