State Farm, Nationwide Among Property Insurers in Hurricane Earl's Path

State Farm Mutual Automobile Insurance Co. and Nationwide Mutual Insurance Co. are among insurers with the most at risk from Hurricane Earl, which threatens to graze North Carolina on Sept. 3.

The state had about $133 billion of coastal property covered by insurers according to 2007 data from AIR Worldwide, distributed by the Insurance Information Institute. Nationwide, Bloomington, Illinois-based State Farm and North Carolina Farm Bureau Insurance Group are the biggest property-casualty carriers in the state by premium revenue, according to North Carolina Department of Insurance data.

“Insurers with larger market shares in coastal insured properties will see the most meaningful impact,” said Elizabeth Malone, an analyst at Wunderlich Securities Inc., in an interview. “Hurricanes that come on to the Atlantic coast could have greatest impact on the properties on the Outer Banks of North Carolina.”

Earl, one of the strongest hurricanes of the Atlantic season, had maximum winds of 135 miles (217 kilometers) per hour, according to the U.S. National Hurricane Center. The center’s forecast maps show Earl is likely to move just past North Carolina’s Cape Hatteras and then on toward Nantucket and Cape Cod in Massachusetts.

Massachusetts ranks fourth in the U.S. with about $773 billion in insured coastal property. Virginia, which borders North Carolina, ranks ninth with about $159 billion and South Carolina is eighth with $192 billion.

Providence, Montauk

Providence, Rhode Island, and Montauk, New York, have a 35 percent chance of experiencing tropical storm-force winds of at least 39 mph within the next four days, according to Tropical Storm Risk, a London-based venture that grew out of a U.K. government-supported tsunami initiative. New York has about $2.4 trillion in insured coastal property, second to Florida.

Two state-created entities of North Carolina sold $305 million of catastrophe bonds in May to protect against hurricane damage, according to Munich Re, the world’s largest reinsurer, which helped manage the deal. Catastrophe bonds pay fixed-income investors more than benchmark rates for taking the risk they could lose their principal in the event of a disaster that meets pre-defined conditions.

The North Carolina Joint Underwriting Association and the North Carolina Insurance Underwriting Association were created to provide coverage for property owners who can’t buy policies through standard insurance markets.

‘Too Expensive’

“The state has a history of a fair number of events taking place,” said John DeMartini, head of consulting firm Towers Watson & Co.’s catastrophe risk-management practice. The state- created pools have grown as larger companies “decide that the risk is a little too expensive relative to the premium that they can charge in the state.”

State Farm, the largest U.S. home insurer, is tracking the storm, said Holly Anderson, a spokeswoman for the company. Columbus, Ohio-based Nationwide is watching Earl, according to Elizabeth Stelzer, a spokeswoman. A call to the North Carolina Farm Bureau wasn’t immediately returned. All three companies are owned by policyholders.

Allstate Corp. and New York-based Travelers Cos. are among the publicly traded insurers with the most business in North Carolina’s property-casualty market. Allstate, of Northbrook, Illinois, rose 34 cents to $27.60 at 4:01 p.m. in New York Stock Exchange composite trading. Travelers rose 4 cents to $48.99.

Insurers may be able to charge more for coverage if a storm depletes industry capital after a quiet season in 2009 pressured prices, Malone said.

Insurance Rates

“The industry is positioned to respond quickly,” she said. “If it is a year with meaningful catastrophe losses, the industry will respond with rate increases.”

Allstate’s share of the residential insurance market in North Carolina coastal areas is less than the 8 percent to 9 percent that the company has statewide, said Christina Loznicka, a spokeswoman for the insurer.

The second half of the year is typically riskier for U.S. insurers because of the Atlantic hurricane season, which runs from June through November, with the coming weeks usually the most active. The U.S. Climate Prediction Center cut its forecast on Aug. 5 for the hurricane period to a range of 14 to 20 named storms, down from 14 to 23 on slower-than-expected activity in the first two months of the season.

Katrina, Rita

Twenty storms this year would make it the third-most-active season on record. The most-active season saw 28 storms in 2005, when hurricanes Katrina and Rita hit the Gulf of Mexico.

In 2003, Hurricane Isabel struck the Outer Banks as a Category 2 storm, killing at least 16 people and causing about $3.4 billion of damage, half of it to insured property, according to the center.

Hurricane Fran was a major hurricane when it hit North Carolina in 1996, causing $1.6 billion of damage to insured property, the bulk of it there and in Virginia, according to National Hurricane Center records. Katrina caused more than $40 billion in insured losses, according to inflation adjusted figures from the Insurance Information Institute.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net.

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