The storm has passed and people along the northeast coast of the US are slowly starting to assess the damage caused by Hurricane Sandy. One of the first calls will be to the insurers. Traditional wisdom has it that now would be a good time to buy into the insurance sector, as big losses are swiftly followed by higher premiums and, eventually, higher profits. According to Credit Suisse, US reinsurers outperformed US non-financials in the year after Hurricane Andrew in 1992, the Northridge earthquake in 1994 and Hurricane Katrina in 2005.
This time is different. It is early but risk modellers are estimating the insured loss to be $7bn-$20bn, well ahead of the $4bn-$5bn suffered after Hurricane Irene last year. That will not worry the reinsurers too much – their coverage only tends to start once the loss has passed $10bn, so their portion of the total will be relatively low. The primary insurers are more exposed, so the likes of State Farm, Allstate and Travelers, which have big market shares in the affected areas, will be the ones to watch. Much will depend on how much damage was caused by wind (covered by insurers) and how much by floods (covered by the state).
Prices have already been rising, driven by global catastrophe losses and poor weather in the US in 2011. US property catastrophe insurance prices are up 7 per cent this year, according to insurance advisory group Guy Carpenter. On top of that, the sector is well-capitalised thanks to rising earnings (until Sandy, 2012 had been a relatively benign year) and a more conservative investment attitude across the sector.