Signs of P&C Underwriting Weakness
AIG on Friday announced that its "preliminary estimate" of losses from Hurricane Sandy would be $2.0 billion, net of reinsurance, or $1.3 billion after taxes. The company also said it expected to contribute $1 billion in capital to its AIG Property Casualty unit, after the unit had paid $2.4 billion in dividends to the holding company through the first three quarters of 2012. AIG also said on Friday that the P&C unit had $49.6 billion in capital and that the parent company had total equity of $102.4 billion. So for AIG, Sandy is clearly "an earnings event, not a capital event," as Deutche Bank analyst Joshua Shanker wrote in a report on Monday. Sandy will wipe out AIG's fourth-quarter earnings, with Shanker estimating a net loss of 16 cents a share and lowering his 2012 EPS estimate to $3.77 from $4.10, while lowering his 2013 EPS estimate by a nickel to $3.45." Shanker said that the company's exposure to Sandy was "higher than we would expect," but also said that "a lack of gross loss detail could mean that AIG is reserving conservatively by reserving up to its retention, given the uncertainty still inherent from the event, and may result in favorable development in the future."
- Allstate (ALL) on Nov. 28 estimated that its losses for October, net of reinsurance, totaled $1.1 billion, before taxes. The company said that "autos represent approximately 40% of the total gross losses, with 78% in New York, 19% in New Jersey and 3% in other states." For its Property-Liability unit, Allstate reported underwriting income of $1.316 billion for the first three quarters of 2012, improving from an underwriting loss of $1.483 billion, a year earlier. The combined ratio improved to 93.4 during the first three quarters, from 107.7 during the same period in 2011.
- The Travelers Companies (TRV) on Dec. 5 announced that its preliminary estimate of losses related to Sandy was $1.135 billion, net of reinsurance. The after-tax loss estimate was $650 million. For the first three quarters, Travelers reported an underwriting profit of $845 million for the first three quarters of 2012, improving from an underwriting loss of $1.453 during the first three quarters of 2011. The company's combined ratio for the first three quarters was 94.3, improving from 108.2 a year earlier.
- Chubb Corp. (CB) hasn't yet reported an estimate of losses from Hurricane Sandy, but the company did say in its 10-Q filing on Nov. 8 that it had "temporarily ceased" repurchasing common shares. For the first three quarters of 2012, Chubb reported underwriting income of $880 million, increasing from $290 million during the first three quarters of 2011. The combined ratio for the first three quarters was 90.1, improving from 97.1 a year earlier.
Sell-Side Analysts Love AIG
AIG's shares have now returned 52% year-to-date, following a 52% decline during 2011. Putting those two numbers in perspective, the shares were down 27% from the end of 2010. The shares trade for 10 times the consensus 2013 EPS estimate of $3.49, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is four dollars. Out of 22 analysts polled by Thomson Reuters, 14 rate American International Group a buy, while eight have neutral ratings. Sterne Agee analyst John Nadel on Tuesday said that his firm was not surprised by the government's timing for the sale of its remaining AIG shares, as "the announcement of estimated losses from Sandy was the critical factor," in the timing of the announcement. The analyst said that with the U.S. Treasury "fully out, we expect