SNL Analysis Highlights Sandy’s Impact on P/C Underwriting Results

March 14, 2013

Financial information firm SNL Financial’s preliminary analysis of more than 2,600 individual property/casualty filer’s statutory data illustrates how big of an impact Superstorm Sandy had on the filers’ underwriting results.

SNL said this week one individual filer whose 2012 underwriting loss stood out — given its concentration in Sandy-impacted areas — was the $306.2 million full-year loss for New Jersey Manufacturers Insurance Co. The company had an underwriting profit of $14.1 million for the first nine months of 2012, which suggests it had an underwriting loss of $320.4 million during the 2012 fourth quarter. (The as-reported data as of March 8 included only annual results, so the indications regarding fourth-quarter results reflect the differences between the numbers for the full year 2012 and the year-to-date period through Sept. 30, 2012.)

New Jersey Manufacturers Insurance had a quarterly underwriting loss of greater than $100 million only three times during the past 48 quarters, SNL said. Prior to the fourth quarter of 2012, the company’s worst underwriting loss going back to the start of 2001 amounted to $121.8 million in the third quarter of 2011, according to the analysis.

Overall, New Jersey Manufacturers Insurance said in December that it had received more than 52,000 Sandy-related claims. The company said the most common homeowner loss being reported was related to wind damage and the most common cause of automobile loss was related to flooding. The company anticipated at the time that payouts to policyholders who suffered covered losses could exceed $300 million — four times what it paid as a result of Tropical Storm Irene.

The company said at the time that while the expected payout is significant, its balance sheet is designed to respond to the covered claims of its policyholders in this type of event. In its most recent evaluation by A.M. Best, NJM was awarded an A++ (Superior) for financial strength — the highest possible rating.

Among all the individual filers, State Farm Mutual Automobile Insurance Co. reported $1.58 billion in underwriting loss for 2012 — it’s the largest underwriting loss among the individual filers for which 2012 data was available as of March 8, according to SNL. Data suggests $1.32 billion from that $1.58 billion underwriting loss was attributable to the fourth quarter. The combined underwriting loss of State Farm Mutual Auto and State Farm Fire & Casualty Co., excluding other, smaller State Farm companies, was $2.32 billion for 2012, of which $1.63 billion appeared attributable to the fourth quarter.

Other individual P/C filers to report 2012 full-year underwriting losses of more than $1 billion were Fireman’s Fund Insurance Co., CNA Financial Corp.’s Continental Casualty Co. unit, Liberty Mutual Holding Co. Inc.’s Liberty Mutual Insurance Co. unit and MGIC Investment Corp.’s Mortgage Guaranty Insurance Corp. unit. (An individual filer’s full-year results may not necessarily be indicative of group-level data.)

SNL said that for the full-year 2012, the P/C industry’s overall net underwriting loss totaled more than $13 billion for the more than 2,600 individual P/C filers whose data was available as of March 8. (Filers also included companies engaged in specialties such as mortgage and bond insurance.)

SNL said this same group of individual P/C filers together had an underwriting loss of roughly $4.8 billion during for the first three quarters of 2012 — which suggests a 2012 fourth-quarter aggregate underwriting loss of $8.2 billion. The as-reported data as of March 8 included only annual results, so the indications regarding fourth-quarter results reflect the differences between the numbers for the full year 2012 and the year-to-date period through Sept. 30, 2012.

The analysis suggests Sandy contributed to make the last three months of 2012 the worst fourth-quarter of any year since 2002 in terms of underwriting results.

Full-Year 2012 Underwriting Losses Much Smaller Than 2011 Losses

The P/C industry’s 2012 full-year underwriting loss still appears much smaller when compared to 2011’s catastrophe-heavy underwriting results and the full-year 2011 underwriting loss of $34.33 billion for all filers. The 2012 results are still subject to change upon further analysis and the receipt of data for the remaining active P/C filers.

SNL said the P/C industry posted “very modest’ underwriting profits in two of the first three quarters of 2012 and generated underwriting profits in six of the previous nine fourth quarters through 2011. But it said underwriting profitability has generally proven elusive for the industry. The firm pointed to another report from ratings agency Moody’s this month that showed P/C industry’s catastrophe losses declined in 2012 while still remaining at high levels.

SNL said the 2012 fourth quarter could become the fourth reporting period in the last seven in which the P/C industry’s aggregate underwriting losses topped $5 billion. The first and third quarters of 2012 have been the only periods of aggregate underwriting profitability for the P/C industry since the fourth quarter of 2009.

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