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AIG Warns Hurricane Damage Will Cost It $3 Billion

The damage to insurance companies worldwide continues to rise as the accounting for the impact of the three terrible hurricanes and Mexican earthquakes continues. And on top of these damaging events, US insurers and their reinsurers now have to content with the multi-billion dollar fires in northern California. Thousands of homes and businesses - including hotels, winers and associated infrastructure - have been destroyed by a series of fires that have rolled through the wine country in Sonoma County, near San Francisco.

And the 4th quarter has started with a small bang with Hurricane Nate last week said to have cost US insurers and other reinsurers up to half a billion dollars, while storms in northern Germany last week will cost more than $US300 million This destruction will make the current quarter another tough one for US insurers - and perhaps QBE - which has a big insurance book in the US.

Last week QBE revealed the initial cost of the spate of natural disasters in North America in the past month to six weeks - the two quakes in Mexico and a trio of hurricanes in Harvey, Irma and Maria - that have rocked the global insurance and reinsurance market. In its case it was around $US600 million, with possibly more to come.

QBE shares ended down 0.9% at $10.30 yesterday.

Overnight Monday we got a much bigger blob of red ink from a bigger insurer in the US giant, AIG which put the cost to it for the three months to September 30 at around $US3 billion.

That was after another big US insurer, Chubb has warned in late September that the losses from hurricanes Irma and Harvey could cost it around $US1.3 billion. Insured losses for Hurricane Harvey are estimated at about US$650 million, before tax, losses for Hurricane Irma were between US$800 million and US$950 million.

The company said that the estimates are net of reinsurance, which includes “reinstatement premiums and comprise losses generated from Chubb’s commercial and personal property and casualty insurance businesses as well as its reinsurance operations.”

AIG CEO Brian Duperreault described the costs from the storms and earthquakes as “unprecedented”. A week ago QBE warned that 2017 will likely be “the costliest year in the history of the global insurance industry” and will push the company into the red following the high number of “extreme global catastrophe” losses throughout the year so far.

In a guidance update AIG warned it expected to take a $US1.2 billion hit in the third quarter from Hurricane Harvey, which ruined swaths of Houston, $US1billion of losses from Irma, which struck Florida, and $US700m from Maria, which had devastated Puerto Rico. It said other catastrophe losses, including the two earthquakes in Mexico, will cost it another $US150 million.

Catastrophe modellers estimate that the wider insurance industry will pay out at least $US100 billion. That could make 2017 the costliest year for natural disasters on record, and put upward pressure on premium levels — especially for catastrophe reinsurance — after years of weakness.

As we reported last week 2011 remains the worst - economic losses of about $US380 billion, topping the previous record year of 2005 with its losses of $US220 billion.

The earthquakes in Japan in March and New Zealand in February alone caused almost two-thirds of these losses. Insured losses of $US105 billion also exceeded the 2005 record ($US101 billion).

For some insurers, Maria’s insured losses are to come but modelling firm, AIR Worldwide calculates those at up to $US85 billion.

Besides Zurich-based Chubb other companies to have issued warnings include the huge German reinsurer Munich Re, have already cautioned that devastation wrought by the disasters will wipe out third-quarter profits. Munich Re has yet to mention the impact of Maria on its business performance for instance.

Another big German insurer, Hannover Re said on September 21 that it expects natural catastrophe events to exceed its large loss budget which is likely to result in the company missing its targeted EUR1 billion group net income in 2017.

Hannover Re said that it believes its losses from hurricanes Harvey and Irma will be dealt with within its EUR825 million major loss budget for 2017. However, the reinsurer added that the impacts of hurricane Maria and the earthquake in Mexico, which it does not have detailed loss information for yet, “will give rise to further substantial strains that will exceed the large loss budget.”

As a result, Hannover Re said that it may not make its EUR 1 billion profit target for 2017, although it does believe it will pay its dividend payout as expected.

And small European reinsurer, SCOR said on Monday that it expects its net losses from recent catastrophes will total EUR 430 million, after tax and retrocession

US investment analysts forecast AIG will report a loss for the third quarter because of these huge one off costs.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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