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Charley losses ‘manageable’

Insurers have continued to count the cost of Hurricane Charley this week with firmer loss estimates coming from US, Bermudian and European companies appearing to steady midpoint total loss estimates at around $7bn-$8bn.

As reported in Insider Week No 135, Hurricane Charley battered the Florida mainland bringing 145mph winds and a storm surge of around six metres as it landed near Fort Myers in southwest Florida on the afternoon of 13 August, before crossing directly over the towns of Port Charlotte and Punta Gorda in Charlotte County.

It then cut a 25-mile swathe of devastation across the State, as it tore roofs off houses, ripped apart mobile homes and damaged tens of thousands of other buildings – before passing over Orlando and out into the Atlantic Ocean. Although the storm later headed back inland into North Carolina, it caused no further significant damage.

The latest estimates as to total insured claims are between $4-$8bn by risk-modelling firm RMS and $6bn–$10bn by catastrophe loss modeller AIR Worldwide, while the Insurance Information Institute calculated the sum would be $7.4bn.

Lloyd’s syndicates, other insurers and analysts have continued to release updated loss predictions over the past week.

On 19 August, US insurer AIG said its post-tax loss from claims related to Hurricane Charley would be between $80-100mn.

It said initial loss estimates included the company's domestic brokerage group - which oversees Lexington, its domestic personal lines business, and investments in Transatlantic Holdings, Lloyd's Syndicate 1414, Allied World Assurance and IPC.

Morgan Stanley analyst Vinay Saqi lowered AIG's Q3 2004 estimate to $1.14 from $1.16, while maintaining an underweight rating on the stock because of its high book value ratio.

He explained: "Given the mechanisms in place - the hurricane fund and the fact that a sizeable portion of the coastal risk is written by a quasi state-sponsored company - the loss to the private insurance industry seems manageable and not likely to cause a major shift in pricing. AIG's exposure seems to be about 2 percent of the industry loss, which seems to be in line, given that AIG is not a significant writer of homeowners coverage."

Specialty insurer HCC Insurance Holdings said it expected third-quarter losses after reinsurance recoveries of less than $10mn, or 10 cents per share as a result of Hurricane Charley.

According to Stephen L Way, HCC's chairman and CEO, most of these losses would come from damage to small, privately owned aircraft written by subsidiary, Avemco, the world's largest writer of privately owned aircraft insurance.

State Farm, the largest home insurer in Florida, said it expected losses, net of reinsurance and other sources, to be in the region of $200mn.

For its part, US casualty specialist WR Berkley reported an expected initial net after-tax loss of no more than $5mn from Charley, the result, it said, of the company's "commercial lines insurance and reinsurance operations, as well as its participation in Lloyds".

For Bermudians, Hurricane Charley is being seen as the first real test of their mettle – and the past week has seen an outpouring of initial loss estimates.

Hamilton headquartered Alea Group noted that losses from the hurricane were unlikely to exceed net $10mn, a figure within annual loss expectations for the group's limited property catastrophe portfolio, it said.

Fellow Bermudian ACE said preliminary estimates indicated total pre-tax net losses for the entire ACE Group were in the region of $100mn, in line with previously stated guidance for annual catastrophe-related losses.

Elsewhere, XL Capital said it expected $125mn in claims to be filed from the effects of Hurricane Charley, lowering its third-quarter results. It said the majority of the claims were expected from its Bermuda-based reinsurance unit and that the claims would not materially affect its overall financial condition.

In a research note, Morgan Stanley analyst Vinay Saqi lowered the company's third quarter 2004 estimate to $1.60 from $2.17 while maintaining an equal-weight rating on the stock due to valuation.

Meanwhile, reinsurer PartnerRe went on the record to outline the estimated impact of the hurricane. In a statement Partner Re president and CEO Patrick Thiele said exposure to Hurricane Charley was estimated at $35-$45mn.

On 19 August Morgan Stanley analyst William Wilt lowered the company's third quarter 2004 estimate to $1.50 from $1.92. He added that Partner Re's estimates assume an insured loss of between $6.5-$8bn.

However, there was worse news for RenaissanceRe which said that, based on initial loss reports, it estimated Hurricane Charley would negatively impact third quarter earnings by $100-$140mn. It said the hurricane affected catastrophe reinsurance written by RenaissanceRe and by DaVinci Reinsurance as well as primary insurance and quota share reinsurance written in the company's individual risk segment.

It noted that compared to other potential catastrophe events, Florida hurricanes of the magnitude of Hurricane Charley cause disproportionately higher losses to the company, as a percentage of total industry losses. It added: "This results from the company's decision to pursue a relatively large share of the Florida market, as well as from the structure of the company's ceded reinsurance, which generally responds to higher industry losses."

For Odyssey Re initial estimates of losses from Hurricane Charley come to approximately $20mn on a net after-tax basis, based on internal catastrophe models, consultation with client companies and current industry insured loss estimates. Separately, Odyssey Re’s major stakeholder Canada’s Fairfax Financial Holdings said it expected to a $35-40mn after-tax hit as a result of damage inflicted by the hurricane.

White Mountains and Everest Re have also announced their preliminary estimates, with the former suggesting possible total pre-tax net losses of less than $45mn and the latter pointing to after tax losses of $40mn. Montpelier Re said the estimated net negative impact of Hurricane Charley losses for Q3 2004 was in the range of $48-63mn.

Finally, Endurance Specialty Holdings said third quarter earnings, after-taxes, would be negatively impacted by $43-48mn.

Endurance Chairman and CEO Kenneth LeStrange explained: "Endurance's Hurricane Charley loss estimate was derived from various sources of information including our proprietary modeling technology, standard industry models, and assessments of exposure obtained from our clients at the contract level. Our portfolio of risk exposures has performed as expected in an event of this type. Barring any additional catastrophic or unforeseen events, the Company expects to meet or exceed its return on equity goal of 15.5-17.5 percent during 2004."

Europeans were also counting the cost of Hurricane Charley as Insider Week went to press.

Swiss reinsurer Converium said it was facing less than $25mn in gross losses from hurricane Charley. This compared with a €1mn-10mn estimate from French reinsurer SCOR and an estimate from Munich Re that losses were expected to be in the low three-digit million-euro range.

Swiss Re, the world's second largest reinsurer, said it expected total industry claims in the region of $5bn-10bn but that its share would be less than $200mn and would not affect its positive outlook for earnings in 2004.

Zurich Financial Services published a loss estimate of around $150mn, net of reinsurance.

Other hurricanes
Hurricane Charley was the second major storm to hit Florida in the space of a week. On 12 August, Hurricane Bonny lashed the coast as it made landfall near the Florida Panhandle with winds near 50 mph. North Carolina, Governor Mike Easley subsequently declared a state of emergency after tornadoes resulting from Bonny killed three people and injured more than two-dozen others.

However, with climate forecasting consortium Tropical Storm Risk forecasting a higher than average hurricane season, it seems likely that Hurricane Charley is only the beginning of a turbulent 2004.

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