AFG American Financial Group

RenaissanceRe Holdings Ltd. (RNR) announced its initial estimate of a net negative impact of $130 million on its fourth quarter 2012 financial results due to losses arising from Hurricane Sandy. The estimate includes the expected claims and claim expenses incurred, earned reinstatement premiums assumed and ceded, lost profit commissions, redeemable non-controlling interest – DaVinciRe, and other income relating to ceded reinsurance contracts accounted for at fair value.

The initial estimate is derived on the basis of RenaissanceRe’s preliminary talks with some counterparties, its assessment of possible exposures and catastrophe modeling techniques. However, the estimate is expected to be revised as the hurricane occurred recently and only a small amount of claims data is available as of now.

Moreover, the magnitude of the storm and the legal issues related to it, the contingent nature of business disruption and other exposures, the abnormal complexity of the coverage and doubts intrinsic to loss estimation make it difficult to accurately estimate the total covered losses for the insurance industry from the hurricane. Thus, RenaissanceRe will likely revise the estimated negative impact once new or more accurate data is available. Such estimate revision will be recorded by the company in the accounting period in which the revision is made.

Currently, the Zacks Consensus Estimate for RenaissanceRe’s fourth-quarter earnings stands at 72 cents, plunging 34.93% from the year-ago quarter. Additionally, the Zacks Consensus Estimate for 2012 earnings is about $7.96 per share, surging 347.23% over the 2011 level. The company’s full-year results will also be impacted by the hurricane.

Hurricane Sandy has also affected many property-casualty insurers such as Hartford Financial Services Group Inc. (HIG), American Financial Group Inc. (AFG), The Travelers Companies Inc. (TRV), Allstate Corporation (ALL), Progressive Corp. (PGR) and RLI Corp. (RLI). While most property-casualty insurers were benefiting from comparatively lower catastrophe levels in the first three quarters of 2012, Hurricane Sandy changed the scene. Some of these insurers, such as Hartford, American Financial, Allstate and RLI, have already announced their loss estimates due to Sandy.

RenaissanceRe carries a Zacks #3 Rank (Hold). We maintain a long-term ‘Neutral’ recommendation on the stock.

 
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