Allstate Corp. (ALL) is leading property and casualty insurers to the best start since 2003 amid a decline in tornadoes and forecasts for fewer major hurricanes.
Twisters killed six people from April 1 to May 28, compared with 541 deaths in the two months last year, the U.S. National Weather Service said. Insured losses from severe weather in the U.S. were about $1 billion last month, lagging behind losses of roughly $16 billion from tornadoes and other severe weather in April and May of last year, broker Aon Plc (AON) estimated.
Insurers that raised prices after last year’s disasters are gaining as claims costs drop. Allstate’s net income jumped to the highest since 2007 in the first quarter and operating profit at New York-based Travelers Cos. (TRV) beat analysts’ estimates. Companies may benefit further as forecasters predict a below average Atlantic hurricane season, which officially begins June 1.
“Companies are enjoying pretty good rate increases, which is a byproduct of the amount of losses that they took last year,” Mark Dwelle, an analyst at RBC Capital Markets, said in an interview from Richmond, Virginia. “Combine relatively higher rates with at least so far modest to manageable losses, it leads to a reasonable expectation” of better results.
The Standard & Poor’s 500 Property & Casualty Insurance Index advanced 6.6 percent since Dec. 31 after declining in the same period five of the last nine years. Northbrook, Illinois-based Allstate, the largest publicly traded U.S. home and auto insurer, jumped 25 percent this year and Travelers climbed 6.3 percent, compared with a 6 percent gain in the S&P 500.
The National Oceanic and Atmospheric Administration projects one to three major hurricanes in the six-month Atlantic season, according to a May 24 statement. An average year has three major hurricanes, defined as those with top wind speeds of 111 miles (179 kilometers) per hour or more.
Four major hurricanes formed last year, including Irene, which lashed the U.S. East Coast in August and caused flooding in Vermont and western Massachusetts. The storm resulted in about $15.8 billion in damages, including $4.3 billion incurred by private insurers, according to U.S. government estimates.
Allstate boosted homeowners’ rates after the insurer faced $3.8 billion in claims costs tied to natural disasters in 2011. It booked $259 million in catastrophe costs in the first quarter, compared with $333 million a year earlier. April catastrophe losses were about $280 million, down from $1.4 billion a year earlier. Rates rose an average of 7.9 percent in the 13 states where Allstate received permission to boost premiums, Robert Block, vice president of investor relations, said on a May 3 conference call.
Travelers, the lone insurer in the Dow Jones Industrial Average, said it raised prices after last year’s disasters by about 10 percent for homeowners’ coverage and has requested further increases from regulators. Catastrophes cost the firm $168 million in the first quarter, 9.7 percent less than a year earlier.
“Given the potential for continued unusual weather patterns, we are going to continue to take the actions we believe are necessary to improve returns,” President Brian MacLean said in an April 19 statement.
Last year’s natural disasters included a May 22 tornado that tore through Joplin, Missouri, killing more than 125 people, as well as deadly twisters in Tuscaloosa, Alabama, and Springfield, Massachusetts. The 2011 tornado season was the third most active since 1980 with more than 1,550 confirmed storms, according to CoreLogic Inc., a Santa Ana, California-based data provider. The storms contributed to second-quarter losses in 2011 for Allstate and Travelers.
‘Do Some Damage’
The Tuscaloosa and Joplin twisters caused the two worst losses ever for Cincinnati Financial Corp. (CINF), Chief Executive Officer Steven Johnston said in an interview. While tornado activity subsided, the Fairfield, Ohio-based company’s catastrophe losses were about three times the normal level in this year’s first quarter as hail storms damaged homes.
“If you get hail that’s the size of golf balls, it can really do some damage,” he said.
It’s too soon to say how second-quarter storm losses will compare to last year, when catastrophes cost the firm $290 million, Johnston said. “You haven’t seen anything to the extent of a Joplin or a Tuscaloosa,” he said.
Cincinnati Financial raised homeowners’ premiums by about 8 percent each of the last three years and increased some deductibles, he said. The stock gained 18 percent this year.
Tropical Storm Beryl
United Services Automobile Association, the policyholder-owned insurer that caters to military families, received about 20,000 claims for property and car damage through April compared with about 40,000 a year earlier, Rebecca Hirsch, a spokeswoman for the San Antonio-based firm, said by phone.
Beryl, the second named storm of the 2012 Atlantic hurricane season, made landfall as a tropical storm near Jacksonville Beach, Florida, the U.S. reported on May 28. Beryl weakened to a tropical depression and no major damage has been reported, according to Risk Management Solutions Inc., a modeling firm.
Forecasters at Colorado State University in Fort Collins say there’s a 42 percent chance of a major hurricane making landfall in the U.S., below the 52 percent average over the past century. Wind patterns and cooler water in the Atlantic contributed to the projection.
One Big Storm
“These forecasts bode well for a better than average summer, but it’s hard enough to pick stocks without having to forecast the weather on top of it,” RBC’s Dwelle said. “If we don’t get any bad landfall in hurricanes, then the earnings ought to be very strong right across the group. If we do, then it’ll depend on the specifics.”
Still, it may only take one big storm to create major losses for insurers.
Colorado State’s Philip Klotzbach said 1992’s forecast as “a very quiet hurricane season” proved accurate until August of that year, when Hurricane Andrew hit Florida. Andrew caused about $46 billion in damage, according to an inflation-adjusted National Hurricane Center estimate. That makes it the second-most costly U.S. hurricane after Katrina, which did more than $100 billion in damage in 2005.
“I’m sure the insurance industry remembers Hurricane Andrew,” Klotzbach, lead author of Colorado State’s 2012 forecast, said in a phone interview.
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