Cincinnati Financial expects $120m Q3 catastrophe hit

U.S. primary insurance and reinsurance group Cincinnati Financial Corporation said that it is expecting roughly $120 million of catastrophe losses from its third-quarter 2018 operations, the majority of which will be driven by hurricane Florence.

The firm said that its Cincinnati Insurance Companies’ property casualty group, which includes its inwards reinsurance operations Cincinnati Re, would expect to suffer a 9.5% to 10% hit to its third-quarter 2018 combined ratio thanks to the roughly $120 million of pretax catastrophe losses suffered during the period.

This is almost double the 5.6% 10‑year historical average catastrophe loss contribution to the combined ratio that the firm has seen in Q3’s.

Cincinnati Financial expects to suffer $92 million of losses due to the impacts of Hurricane Florence, which includes roughly $7 million for its reinsurance assumed operations at Cincinnati Re.

The estimate of third-quarter 2018 catastrophe losses breaks down as, $77 million from commercial lines insurance, $34 million for personal lines insuranceand $9 million for Cincinnati Re.

As a result, the firm estimates its third-quarter 2018 property casualty combined ratio will fall between 96% and 98%, helped by some net favorable reserve development on prior accident years from its commercial casualty line of business.

Additionally, Cincinnati Financial said that hurricane Michael will impact its fourth-quarter 2018 results, saying that initial claims reports suggest that its personal lines accounts will take the brunt of this loss, with nearly half located in Georgia and approximately one-quarter in Alabama.

Steven J. Johnston, president and chief executive officer, commented, “Hurricanes Florence and Michael left a wide path of destruction across the southeast, changing lives forever. However, it’s in these tough times when our field claims representatives shine, helping our agents and policyholders quickly and in-person so that these families and communities can begin to rebuild. We take the responsibility of paying our claims seriously and manage our capital to ensure we have ample capacity to pay insured losses promptly.”

Cincinnati Financial did not reveal how much of its losses could be borne by its reinsurance panel, but it is likely to be a reasonable share and the addition of fourth-quarter losses from hurricane Michael could push additional losses from the firm towards its reinsurance providers, some of which may be ILS funds.

The firm is a user of collateralized reinsurance cover from the capital markets, with its Skyline Re cat bond providing earthquake and severe thunderstorm coverage, while other elements of collateralized backing exist in its reinsurance program we understand.