A number of new estimates for losses caused by hurricane Sandy have been published by insurers and reinsurers. We’re only really following estimates from those with cat bonds or where they involve the top insurers in the region and so offer a rough approximation tool for estimating where the industry loss from this event may grow to. Two of the U.S. primary insurers who have a market share in the top ten for the region are Chubb and Hartford and both announced their losses yesterday.
First The Hartford, whose CEO had last week said that the companies losses from Sandy may reach the level where their reinsurance cover attached. The Hartford has a market share in the region affected by Sandy of around 2.3%. They announced an estimate of gross losses of $370m, and a net of reinsurance and before tax loss of $350m. This is because the Hartford retain the first $350m of losses which suggests that reinsurers will only be responsible for paying $20m of the Hartford’s loss.
The Hartford said that their losses are split roughly 60% in their Property and Casualty Commercial segment and 40% in Consumer Markets. Factoring up their loss based on a 2.3% market share would equate to an industry loss of just over $16 billion. The Hartford noted, as every company announcing losses from Sandy has, that the loss estimate will likely rise as the claims impact becomes better understood and said that their final ultimate net losses could be materially different.
The Chubb is one of the insurers we’ve been waiting to hear a loss estimate from as the Class B notes of their East Lane Re IV Ltd. catastrophe bond have been one of the transactions which has seen a significant mark-to-market price decline on the back of hurricane Sandy. The Class B notes have been priced down at an average bid around 86 by most trading desks, according to our sources as investors have worried that Chubb’s share of the Sandy losses could be significant given the amount of commercial cover they provide which would be exposed to flood and surge.
Chubb announced yesterday that it estimates its losses from hurricane Sandy to be approximately $880 million before tax, or $570 million after tax (which equates to $2.14 per share after tax). According to Chubb these amounts include estimated losses and loss expenses net of reinsurance recoverable and also include estimated reinsurance reinstatement premiums.
We understand that Chubb have a $500m retention on their reinsurance programme this year so as the numbers above are net of reinsurance recoverables we presume that the $500m is retained and another $70m is for their estimated reinsurance reinstatement premiums.
We don’t at this time know how high the total gross loss suffered by Chubb has been and how much of Chubb’s losses global reinsurers are picking up. The $250m of East Lane Re VI Class B notes have an indemnity trigger attachment point of $2.15 billion of losses. At this time we don’t know if Chubb’s total losses reached that point, we’ll update you should we hear anything regarding the cat bonds fate or otherwise.
Other insurers and reinsurers to announced losses yesterday included, Montpelier Re with $95m net of reinsurance recoveries and reinstatement premiums, ACE Limited with $380m after tax, net of reinsurance and including reinstatement premiums and The Hanover Insurance Group who said it estimated after-tax earnings impact of Sandy to be in the range of $120m to $140m.
So losses are beginning to come in more quickly now we’re over a month past the impact of Sandy. The question the cat bond market is left with, as well as how high the industry loss will rise to, is what the fate of Chubb’s East Lane Re VI Class B notes will be and how close to the attachment point their gross losses are. We’ll update you when we hear more on this.
Read our articles on other U.S. primary insurer loss estimates from Sandy: