Chubb Fears Irene Impact - Analyst Blog
September 29 2011 - 12:00PM
Zacks
After bearing a high catastrophe loss in the second quarter
2011, property and casualty insurer Chubb Corp.
(CB) is again set to incur further pre-tax cat
losses of $400 million to $475 million in the upcoming quarter due
to Hurricane Irene, which battered the East Coast in August
2011.
The catastrophe losses, incurred during the third quarter, could
drain Chubb’s earnings by 55 cents to $1.07 per share after
tax.
Chubb’s geographic concentration in calamity-prone areas (the
north-eastern U.S) exposes it to cat losses. The company is still
analyzing and incorporating the new RMS model with its own model as
well as other vendor models, and will reduce its exposure in states
and regions if required.
Consequently, the company has already purchased more
reinsurance, including $200 million for the Northeast U.S. This is
in addition to a $100 million increase on its catastrophe
reinsurance program, which the company had previously mentioned.
Chubb also purchased $100 million of additional reinsurance
coverage for non-U.S. catastrophes.
During the second quarter, total cat losses primarily stemming
from the U.S. winter storms came in at $329 million pre-tax, or
about $0.72 per share, contributing 11.3% to the loss ratio. In
spite of some of the heaviest second quarter 2011 U.S. catastrophe
events on record, Chubb continued to post an excellent underwriting
result, generating a 94.9% combined ratio for the quarter.
Regardless of the external factors, Chubb has a business mix
that continues to perform exceptionally well, even in the face of
large first half storm losses that pushed many of its peers into
losses in the quarter. Chubb also raised its 2011 guidance, even
after taking into account the high level of H1 2011 catastrophe
losses. It now expects operating EPS in the range of $5.55- $5.85
(up from $5.35-5.75). Chubb raised its 2011 catastrophe load to 7.5
points, up from the previous 3.5 points.
Other carriers, likely to suffer cat losses in the third
quarter, include companies like Allstate Corp.
(ALL) and Travelers Companies
Inc. (TRV), which compete closely with
Chubb.
Chubb holds a Zacks #3 Rank, which translates into a Hold rating
over the short-term (1-3 months). The company is slated to release
its third quarter earnings on October 20, 2011 after the market
closes. We have a Neutral recommendation on the stock and may
revisit our recommendation after the third quarter earnings
release.
ALLSTATE CORP (ALL): Free Stock Analysis Report
CHUBB CORP (CB): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
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