The Hartford, Travelers Dodged Major Losses From Gustav

Shares of major property and casualty insurers held steady last week after damage estimates from Hurricane Gustav came in around $10 billion.

Economic damages along the Gulf Coast could have been much worse. Forecasters had predicted Gustav would hit land as a Category 4 hurricane, which could have brought wind speeds of up to 155 mph. But the storm blew ashore Monday morning as a Category 2 hurricane and soon weakened to a tropical depression.

Shares of The Travelers Co. opened Tuesday after the holiday weekend with an initial jump of more than 5 percent. They leveled off at $44.53 Wednesday, up from $43.30 a week earlier. Shares of the Hartford Financial Services Group also rose sharply Tuesday morning, and its shares traded above $64 Wednesday, up from $60 a week earlier.

The stock prices responded well because the hurricane turned out to be much weaker than anticipated, analysts said.

“The expectation for losses was greater than the amount of damage that actually occurred,” said Meyer Shields an analyst with Stifel, Nicolaus and Co. “That’s why stock prices didn’t drop off, despite the damages that were sustained.”

Minnesota-based Travelers, which has major operations in Hartford, had $75.4 million in direct written premiums in Louisiana in 2007, representing 2.6 percent of the market. Hartford Fire and Casualty controls about 1 percent of the Louisiana market with $28 million in direct written premiums recorded in 2007.

Better constructed levees kept flooding to a minimum, saving property and casualty insurers from the nearly $13.1 billion in flood insurance losses caused by Hurricane Katrina.

The $10 billion in damages predicted by risk management firms include land losses between $3 billion to $7 billion. It is too early to tell exactly how much in claims the storm will cost Travelers and The Hartford, but Shields said they will be spending the most on property damage caused by strong winds and business interruption.

Matt Bordonaro, a spokesperson for Travelers, said wind damage caused by the storm “is nothing out of the ordinary.”

The sturdy stock prices might reflect shareholders’ anticipation of rate increases by property and casualty insurers to make up for the losses.

But Shields said he doesn’t expect that to happen.

“Although the storm is going to affect insurers’ [third-quarter] earnings, we don’t see this level of industry-wide loss as anywhere near high enough to reverse declining property-casualty insurance rates,” Shields said in a note to clients.

Analysts from A.M. Best, a New Jersey-based insurance rating agency, agreed.

Shields said property and casualty insurers are going to be able to limit their onshore losses from the hurricane because of wind deductibles, coastal policy nonrenewals and increased reinsurance purchases.