Brutal Winter Snowballs Into Losses

Brutal Winter Snowballs Into Losses

By Mark E. Ruquet

NU Online News Service, April 3, 1:49 p.m. EST?A New Jersey insurer's severe weather loss report is a sign that property-casualty carriers with a heavy presence in the East and South will be significantly impacted by those area's brutal winter, an analyst said.

Selective Insurance Group Inc. announced that the snow storms that blanketed the East Coast in January and February will have a negative impact on first quarter results.

The Branchville, N.J.-based company said that on an after-tax basis, the increase in both weather-related catastrophe and other large property losses over the first quarter 2003 will reduce earnings by approximately $8.7 million, or 32 cents per share. Catastrophe losses accounted for almost 80 percent of the increased losses, the company added.

Gregory E. Murphy, Selective's chairman, president and chief executive officer said in a statement that despite the losses, the company expected to see "solid growth" in 2003.

John Keefe, an analyst for Ferris, Baker Watts & Co., based in Baltimore, said the announcement was "disappointing but not unexpected." He said that the President's Day storm in February, for instance, that hit the South and Northeast region, mirrored the company's underwriting footprint.

"The fact that it was the worst storm in a decade or more should make the news less surprising," observed Mr. Keefe.

Mr. Keefe added that, "We do not think it impacts the company's operations on a prospective basis. If anything, it could serve as a catalyst to increase rates further and tighten underwriting standards."

While Selective announced that 80 percent of its losses were from catastrophic losses stemming from the weather event, Mr. Keefe noted that the remaining 20 percent of losses the company experienced stemmed from the storm.

When asked how other companies would be affected, Mr. Keefe said the investment banking firm believes there are a "plethora of small mutual insurers" that would bear catastrophic losses during their first quarters.

The only other insurer to publicly announce losses stemming from the winter storms was Erie Indemnity Company, based in Erie, Pa., Mr. Keefe noted.

The company, in March, reported it would sustain claims of approximately $25 million, which would result in pre-tax underwriting operations losses of $1.4 million, or one cent per share after taxes.

Still others, such as Cincinnati Financial, saw losses, but they were within the company's underwriting expectation, he added. Others who were impacted have yet to make announcements.

Generally, he said, the losses would not have great impact throughout the industry, but would be company specific.

According to Newark, Calif.-based Risk Management Solutions, its regional weather index for the winter Nov. 2002 to March 2003 found that the temperature average in 5 regions covering the Midwest, Atlantic seaboard and Southern U.S. was much colder than normal. The Northeast region finished the winter 3.6 degrees cooler that the 10-year average, the Midwest 4 degrees cooler, and the Mid-Atlantic region was 2.9 degrees cooler than the average.

Selective said it would announce its first-quarter earnings on May 7.