5 insurance stocks in hurricane's crosshairs
While it remains to be seen just how much damage Sandy will do to the Northeast and Mid-Atlantic regions, it's certainly unusual.
By Philip van Doorn
While 2012 has been a much better year for property and casualty insurers than 2011, Hurricane Sandy could change that, with its surprising timing, its direction and possibly its duration.
"Insured catastrophe losses are down somewhere in the order of 50% from last year," when U.S. insurers saw roughly $32 billion in losses, according to Insurance Information Institute president and economist Robert Hartwig. Although storm and flooding activity have declined from 2011, Hartwig adds, "Hurricane or Tropical Storm Sandy could alter that, but it's too soon to tell."
Insurers have fared much better this year, but "there have been major economic losses from some extreme weather, the national drought being the greatest, with most of the losses falling on the government," through the federal crop insurance programs, says Ceres Coalition spokesman Peyton Fleming.
"Let's hope the forecasters are wrong," Fleming says, "but Hurricane Sandy is sounding very similar to Hurricane Irene a year ago, which hit parts of the country for long durations that were quite unusual." Hurricane Irene caused $4.3 billion in insured losses, "many of which were in northern Vermont and New Hampshire -- places that rarely deal with hurricanes." The Vermont flooding was caused in part because Irene lingered.
In a report published last month, the Ceres Coalition -- a nonprofit sustainability advocacy group -- said the accelerating trend for extreme weather observed over recent years is continuing, which "could undermine some insurers' ability to manage and, in some cases even survive, future catastrophic, weather-related loss events" and "extreme weather is already causing more businesses and properties to be uninsurable in the private insurance markets, leaving the higher risks and costs to governments, taxpayers and individuals."
According to Ceres, "since 1990, total government exposure to losses in hurricane-exposed states has risen more than 15-fold to $885 billion in 2011.4."
Underlining how unusual Hurricane Sandy may turn out to be for the Northeast and the New York City area, Hartwig points out that "it is almost surreal to look at the track of a hurricane at the very end of October slamming into the Northeast -- the very same area, on almost the same day, got a blizzard last year, on Oct. 29 and 30, with widespread power outages, causing hundreds of millions of dollars in damage. So we have freakish weather two years in a row, just in time for Halloween."
While we can't predict what effect Sandy will have on the insurers with the largest P&C market shares in New York and the Northeast, all it takes is one storm to change the story for an insurer's underwriting profit or loss for a year.
According to information provided by the Insurance Information Institute, based on data from SNL Financial, the three carries with the largest property & casualty underwriting business in New York State are all publicly traded: Berkshire Hathaway (BRK.B), with a 7.98% of direct premiums written in 2011, followed by Allstate (ALL), with a market share of 7.71%, and The Travelers Companies (TRV), with a 6.29% share.
For the Northeast, Liberty Mutual had the highest 2011 market share, with 9.65% of direct premiums written during 2011, followed by Travelers, with a 7.08% market share, MAPFRE -- held by MAPFRE SA -- with a 6.00% market share, and American International Group (AIG), with a 3.92% share. Next was Allstate, with a 3.42% Northeast market share, and Chubb (CB), with a 3.41% share.
For the Mid-Atlantic region, State Farm led with a 7.66% share of direct P&C premiums written during 2011, followed by Allstate, with a 7.27% share, Berkshire, with 6.68%, Liberty Mutual, with a 6.12% market share, Travelers, with a 5.94% share, AIG with 5.21%, Nationwide Mutual, with 4.09%, and Chubb, with a 3.21% market share.
Here's a quick summary of year-to-date stock and underwriting performance, for the five companies listed above that are publicly traded in the United States. Some of the companies have not yet reported their third-quarter results.
- Berkshire Hathaway's Class-B shares closed at $87.15 Thursday, returning 14% year-to-date. The shares trade for 16 times the consensus 2013 earnings estimate of $5.50 a share, among analysts polled by Thomson Reuters. For the first half of 2012, Berkshire reported net earnings of $6.353 billion, or $2.56 per Class-B share, increasing from $4.928 billion, or $1.99 billion per Class-B share, during the first half of 2011. Insurance-underwriting earnings for the first half of 2012 were $673 million, compared to an underwriting loss of $828 million a year earlier.
- Allstate's shares closed at $40.51 Thursday, returning 51% year-to-date. The shares trade for nine times the consensus 2013 earnings per share estimate of $4.44. Based on a quarterly payout of 22 cents, the shares have a dividend yield of 2.17%. During the first half of 2012, Allstate earned $1.189 billion, or $2.40 a share, improving from a net loss of $100 million, or 19 cents a share, a year earlier. First-half underwriting income totaled $657 million, compared to an underwriting loss of $1.174 billion during the first half of 2011.
- Shares of Travelers closed at $72.12 Thursday, returning 25% year-to-date and trade for 10 times the consensus 2013 earnings per share estimate of $6.88. Based on a quarterly payout of 46 cents, the shares have a dividend yield of 2.55%. The company reported net income of $1.169 billion, or $5.50 a share, for the first three quarters of 2012, increasing from $808 million, or $1.88 a share, during the first three quarters of 2011. The company's pre-tax underwriting gain for the first three quarters was $845 million, improving from an underwriting loss of $1.453 billion, a year earlier.
- AIG's shares closed at $34.98 Thursday, rising 51% year-to-date, as the government has wound-down its stake in the company's common shares, mainly through AIG buybacks. The shares trade for 10 times the consensus 2013 earnings per share estimate of $3.50. Leaving aside AIG's epic bailout, and the equally fascinating story of how the company is nearly finished paying the government back, the company reported after-tax operating income of $4.955 billion or $2.73 a share, for the first half of 2012, increasing from $3.329 billion, or $1.96 a share, a year earlier. The company's underwriting loss narrowed to $397 million in the first half of 2012, from $1.962 billion, during the first half of 2011.
- Shares of Chubb closed at $79.39 Thursday, returning 17% year-to-date. The shares trade for 13 times the consensus 2013 earnings per share estimate of $6.08. Based on a quarterly payout of 41 cents, the shares have a dividend yield of 2.07%. For the first three quarters of 2012, the company reported net income of $1.443 billion, or $5.29 a share, increasing from $1.226 billion, or $4.16 a share, during the first three quarters of 2011. Underwriting income for the first three quarters totaled $880 million, rising from $290 million a year earlier.
More from TheStreet.com
- 5 dividend stocks ready to give you a raise
- Volcker just wants 'sensible' bank rules
- Why Apple has 20% upside from here
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The Fed may start tapering in just a few months. Here are a few of the likely winners and losers.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.