Chubb and Travelers Take a Hit to Net Income in Wake of Hurricane, Storms
By CYRIL TUOHY, managing editor of Risk & Insurance®
Hurricane Irene and other storms cost Chubb Corp. and The Travelers Cos. Inc., two of the nation's largest commercial insurers, a pretty penny in the third quarter.
Net income at Warren, N.J.-based Chubb dropped to $298 million from $572 million compared with the year-ago period, a decline of 49 percent, the company said. Net income per share dropped to $1.04 from $1.80 in the year-ago period, the company also said.
"For the third consecutive quarters, results for Chubb and the industry were adversely affected by an unusually high level of catastrophe losses," said Chubb Chairman, President and CEO John D. Finnegan, in a statement.
Hurricane Irene and other storms cost the company $420 million pretax in the third quarter, Chubb said. The company's overall combined ratio rose to 102.6 percent compared with 86.2 percent in the year-ago period. Excluding the impact of catastrophes, the third quarter combined ratio was 88.2 percent, up from 84.1 percent in 2010.
Excluding catastrophe losses, the "solid combined ratio" of 88.2 percent reflected the "strong underlying performance" of Chubb's commercial, personal and specialty lines units, Finnegan said.
The combined ratio comprises the claims ratio and the expense ratio. The lower the combined ratio, the more profitable an insurance company's underwriting operations.
A combined ratio of more than 100 means an insurance company's underwriting operations are unprofitable. Insurance companies can still be profitable, however, if investment gains make up for underwriting losses.
Net written premiums for Chubb in the third quarter increased 5 percent to $2.9 billion. The increases came from personal and commercial lines. Specialty lines premiums were flat, the company also said.
Storm-related losses caused Chubb to revise downward full year operating income to between $5.10 and $5.20 per share from $5.55 to $5.85 per share, the company said.
Hurricane Irene resulted in an estimated $3 billion to $6 billion in insured losses, with an estimated $1.5 billion to $2.8 billion of that total occurring in the United States, said analysts with Keefe, Bruyette & Woods analysts, in an earnings preview released Oct. 6.
"We are cutting our third quarter 2011 estimates for many of our companies with coastal exposures to reflect our estimates of the impact of Hurricane Irene," the analysts wrote.
Chubb's competitor Hartford-based Travelers saw its third-quarter after pretax net income decrease to $333 million from $1.0 billion, a drop of 67 percent, the company said. Net income per share sank to $0.79 from $2.11 in the year-ago period.
A "number of significant catastrophes, including Hurricane Irene and Tropical Storm Lee," cause to company's third-quarter results to crater, mainly due to a $487 million after-tax decrease in underwriting, said Jay Fishman, chairman and CEO, in a statement.
Hurricane Irene barreled up the East Coast in late August and caused extensive flooding in Pennsylvania, New York and Vermont. On Sept. 3, Tropical Storm Lee made landfall and dumped heavy rains in Louisiana, Mississippi, Alabama and the Florida panhandle before moving north and causing record flooding in the Mid-Atlantic States.
Travelers combined ratio surged nearly 14 percentage points to 104.5 percent from 90.6 percent, the company said. Catastrophes contributed 8.6 points to the increase in the ratio in the third-quarter.
Travelers also increased its reserves by $114 million after-tax, up from $91 million in the year-ago quarter to settle asbestos-related claims. Payment trends were "moderately higher than previously anticipated," the company said.
Net written premiums in commercial lines segment jumped 7 percent to $2.82 billion, the company said. Net written premiums in personal lines increased 2 percent to $2.03 billion. Net premiums written in the financial, professional and international insurance segment dropped 1 percent to $808 million.
October 25, 2011
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