U.S. Lucky as International Disasters Dwarfed Domestic Losses

U.S. Lucky as International Disasters Dwarfed Domestic Losses

30 June 2010

published by www.businessweek.com

USA — U.S. tornado and wildfire seasons are milder than average this year, sparing domestic insurers like Allstate Corp. as overseas carriers absorbed losses from Chile’s earthquake and the Gulf of Mexico oil spill.

Wildfire frequency through June 28 was the lowest since 2003, National Interagency Fire Center data show. Tornadoes struck 904 times this year, killing 29 people, compared with a first-half average of 983 twisters and 69 deaths from 2007 to 2009, according to preliminary data on the National Oceanic and Atmospheric Administration’s website yesterday.

Catastrophes outside the U.S. this year cost insurers more than twice as much as domestic disasters, with the February quake causing about $7 billion in claims and the Gulf disaster more than $1.5 billion, said Bob Hartwig, Insurance Information Institute president. Lower U.S. disaster costs may bolster surplus at domestic insurers as they brace for a hurricane season predicted to be more severe than average by the NOAA.

“More years than not it’s the U.S. that has the greatest insured catastrophe loss,” Hartwig said. “Global losses dwarfed U.S. losses this year.”

Insurers spent $2.6 billion on U.S. first-quarter catastrophes, down about 18 percent from the same period in 2009, according to the Property and Casualty Insurers Association of America. Tornadoes are typically most frequent from April through June, while the worst wildfires tend to occur from June through October.

AIG, Allstate

Allstate, the largest publicly traded U.S. home and auto insurer, may post operating earnings per share of 98 cents for the quarter ending today, compared with 55 cents in the same period last year, according to the average estimate of 19 analysts surveyed by Bloomberg. Last year, the Northbrook, Illinois-based insurer had record second-quarter claims, with five events costing $50 million or more.

American International Group Inc., which gets most of its revenue outside the U.S. and has been scaling back in the country with the sale of its domestic auto-insurance unit, may post a profit decline. The New York-based company will earn 99 cents a share in the second quarter, according to two analysts surveyed by Bloomberg, compared with $2.57 a year earlier.

Lloyd’s of London has said its insurers will pay $300 million to $600 million tied to the explosion of the Deepwater Horizon Rig that caused the leak in the Gulf of Mexico in April. European reinsurers such as Munich Re and Swiss Reinsurance Co. have disclosed the highest claims from the Chile quake.

“If we did business in other countries, obviously we’d have more losses,” said Dick Luedke, spokesman for Bloomington, Illinois-based State Farm Mutual Automobile Insurance Co. The policyholder-owned insurer reports earnings once a year.

‘We’ve Been Lucky’

California, which endured the country’s costliest wildfires in 2007 and 2008, was spared from severe blazes so far this year because there was enough rain to dampen vegetation, said Julie Hutchinson, a battalion chief for the California Department of Forestry and Fire Protection.

“We’ve been lucky,” she said. “The threat hasn’t stopped, but it’s been delayed and lessened.”

The second half of the year is typically riskier for U.S. insurers because of hurricanes. This year’s Atlantic storm season may be the most active since 2005, which was the worst on record with more than 1,500 U.S. deaths and $115 billion in damage, Moody’s Investors Service said this month. The season began June 1 and ends Nov. 30.

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