Tower Group says it expects an after-tax net loss from Superstorm Sandy of between $55 million and $68 million next quarter.
During a Nov. 8 conference call to discuss the company's third-quarter earnings, CEO Michael L. Lee says he expects Sandy to “easily cause the largest catastrophic event [in Tower's] history.”
Lee says Sandy will be an earnings event for Tower, not a capital event—and it could mean improved personal lines market conditions since “many companies face substantial losses from this event,” says Lee.
He says Tower's reciprocal-company subsidiaries will look to expand in the Northeast while Tower's stock companies “continue to diversify away from the Northeast to minimize our earnings volatility from our concentration in the Northeast.”
Claims are expected primarily from New York, New Jersey and Connecticut, adds William Hitselberger, CFO. Most losses should come from Tower's direct insurance business, he says.
Sandy affected Tower directly, as its Jersey City, N.J. and New York City office were closed for a week following the storm.
Hitselberger goes on to outline the company's risk transfer mechanisms. He says the company retains the first $75 million of losses before reinsurance kicks in up to a layer of $150 million.
“We currently expect the loss for our direct insurance business to be contained in our first layer of reinsurance,” Hitselberger says. The company will pay reinstatement premiums of up to $20 million on the first layer of reinsurance for additional protection through June 30, 2013, he adds.
Additionally, Tower expects to record a fourth-quarter loss of between $15 million and $20 million from its assumed reinsurance business, the CFO says.
The company was also hit hard by Hurricane Irene a year ago. Tower recorded estimated losses from Irene of $60.1 million.
Tower reported third-quarter net income attributable to shareholders of $21.6 million compared to a net loss of $16.4 million during the same time a year ago.
Net premiums earned increased 4.2 percent to $413.4 million, comparing third quarters.
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