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After witnessing benign catastrophe loss during the first nine months of 2012, property and casualty insurer Assurant Inc. (AIZ - Analyst Report) is set to incur pre-tax cat losses in the range of $200–$220 million in the fourth quarter of 2012. The entire loss is attributed to Hurricane Sandy, which battered the Northeast Coast in October this year.
These cat losses will affect Assurant’s largest business – the Specialty Property segment – which accounts for 60% of the company’s operating earnings. The segment incurred $17.9 million in cat losses in the third quarter of 2012.
Assurant’s margins appear to be more volatile than previously expected due to its increased exposure to coastal and catastrophe-prone regions. For this, the company maintains an active catastrophe reinsurance program. In June 2012, the company renewed its comprehensive three-layer reinsurance agreement.
Assurant’s CAT reinsurance agreements are part of the company’s catastrophe management strategy, which aims to provide the shareholders an acceptable return on the risks assumed in its property business and reduce variability of earnings while protecting its customers.
Assurant’s fourth quarter 2012 earnings, scheduled to release on February 6, 2013 after the market closes, will be modestly affected by cat losses. According to the Zacks Consensus Estimate, the company’s fourth-quarter earnings per share (EPS) would be 65 cents, down 60.72% from the year-ago period.
Other insurers that are expected to suffer losses from Hurricane Sandy include The Travelers Companies Inc. (TRV - Analyst Report), having significant homeowners and commercial property exposures throughout the East Coast. Furthermore, The Allstate Corp. (ALL - Analyst Report), the second-largest homeowners’ insurance underwriter, has a substantial exposure to Sandy. W.R. Berkely Corp. (WRB - Analyst Report), XL Group plc (XL - Analyst Report) and The Chubb Corp. (CB - Analyst Report) are some of the carriers that witnessed losses to a comparatively lesser extent.
Assurant retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the company’s shares.