National Interstate Corp., the insurer majority owned by American Financial Group Inc., plunged the most since 2008 after reserves for claims in prior periods proved inadequate, fueling a surprise quarterly loss.
National Interstate, which insures transportation providers, fell 18 percent to $26.70 at 4:30 p.m. in New York, the worst performer in the 495-company Russell 2000 Financial Services Index.
The second-quarter net loss of $6.28 million, or 32 cents a share, compares with profit of $7.27 million, or 37 cents, a year earlier, the Richfield, Ohio-based insurer said in a statement late yesterday. The average estimate was for a profit of 41 cents, according to a Bloomberg survey of five analysts.
“We are obviously disappointed with our underwriting results,” National Interstate Chief Executive Officer Dave Michelson said in the statement. “We experienced an unusual number and magnitude of large claims. We also addressed emerging deficiencies in a portion of our claims reserves.”
Costs tied to prior-year incidents were $8.4 million. The insurer spent $1.14 on claims and expenses for every premium dollar, compared with an underwriting profit a year earlier. Higher costs were fueled by three claims, two tied to passenger transportation and one in moving and storage, the company said.
“We are concerned and disappointed with the adverse reserve development,” Robert Paun, an analyst at Sidoti & Co., said in a research note. While he said the costs were uncharacteristic of the company, Paun cited “several years of weak pricing and unfavorable market conditions in the commercial auto and transportation segments that could result in future adverse adjustments.”
Paun, who has a neutral rating on the insurer, cut his full-year earnings-per-share estimate to 58 cents from $1.67. National Interstate has declined about 7.4 percent this year.