Another initial loss estimate from one of the larger U.S. primary insurers for damage caused by hurricane Sandy has emerged after the CEO of Hartford Financial Services Group suggested that its losses could reach $350m, which is the point at which their reinsurance coverage is triggered. The Hartford is a smaller insurer than others whose Sandy loss estimates we have discussed on Artemis, with its market share estimated at around 2.3% in the affected states.
According to a Dow Jones article, the Hartford’s Chief Executive Liam McGee made the comments at a Goldman Sachs Group conference yesterday. He said that for losses above the $350m, Hartford expects to pay just 10% while its reinsurance cover would pick up 90%.
60% of the estimated losses are said to be from commercial insurance with the remaining 40% from personal lines such as homeowner and auto covers. McGee stressed that this was an early loss estimate and an official estimate would be released soon. He also stressed that the costs from Sandy would be manageable for the insurer.
The Hartford has two outstanding catastrophe bonds which both provide U.S. hurricane coverage to their Hartford Fire Insurance arm; Foundation Re III Ltd. (Series 2010-1) and Foundation Re III Ltd. (Series 2011-1). Both provide coverage on a per-occurrence basis and use an industry loss index as a trigger. Neither of these cat bonds have been considered at risk by the market, as evidenced by the fact that they’ve consistently priced at or above par since Sandy. In fact, for Sandy to have an impact on these bonds we believe it would take an industry loss way above the current estimates given Hartford’s low market share in the region.
Working at a 2.3% market share, if losses were evenly distributed, a $350m loss to the Hartford would be in line with roughly a $15 billion industry loss. We suspect that when Hartford releases something more official their estimate may be slightly higher, thus passing on some of the losses to reinsurers.
Read our articles on other U.S. primary insurer loss estimates from Sandy:
– Travelers loss estimate from Sandy suggests Longpoint cat bonds are safe
– Allstate’s Sandy loss estimate points to industry loss below $20B
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