Brutal Winter Snowballs Into Losses

By Mark E. Ruquet

NU Online News Service, April 3, 1:49 p.m.EST?A New Jersey insurer's severe weather loss report is asign that property-casualty carriers with a heavy presence in theEast and South will be significantly impacted by those area'sbrutal winter, an analyst said.

Selective Insurance Group Inc. announced that the snow stormsthat blanketed the East Coast in January and February will have anegative impact on first quarter results.

The Branchville, N.J.-based company said that on an after-taxbasis, the increase in both weather-related catastrophe and otherlarge property losses over the first quarter 2003 will reduceearnings by approximately $8.7 million, or 32 cents per share.Catastrophe losses accounted for almost 80 percent of the increasedlosses, the company added.

Gregory E. Murphy, Selective's chairman, president and chiefexecutive officer said in a statement that despite the losses, thecompany expected to see "solid growth" in 2003.

John Keefe, an analyst for Ferris, Baker Watts & Co., basedin Baltimore, said the announcement was "disappointing but notunexpected." He said that the President's Day storm in February,for instance, that hit the South and Northeast region, mirrored thecompany's underwriting footprint.

"The fact that it was the worst storm in a decade or more shouldmake the news less surprising," observed Mr. Keefe.

Mr. Keefe added that, "We do not think it impacts the company'soperations on a prospective basis. If anything, it could serve as acatalyst to increase rates further and tighten underwritingstandards."

While Selective announced that 80 percent of its losses werefrom catastrophic losses stemming from the weather event, Mr. Keefenoted that the remaining 20 percent of losses the companyexperienced stemmed from the storm.

When asked how other companies would be affected, Mr. Keefe saidthe investment banking firm believes there are a "plethora of smallmutual insurers" that would bear catastrophic losses during theirfirst quarters.

The only other insurer to publicly announce losses stemming fromthe winter storms was Erie Indemnity Company, based in Erie, Pa.,Mr. Keefe noted.

The company, in March, reported it would sustain claims ofapproximately $25 million, which would result in pre-taxunderwriting operations losses of $1.4 million, or one cent pershare after taxes.

Still others, such as Cincinnati Financial, saw losses, but theywere within the company's underwriting expectation, he added.Others who were impacted have yet to make announcements.

Generally, he said, the losses would not have great impactthroughout the industry, but would be company specific.

According to Newark, Calif.-based Risk Management Solutions, itsregional weather index for the winter Nov. 2002 to March 2003 foundthat the temperature average in 5 regions covering the Midwest,Atlantic seaboard and Southern U.S. was much colder than normal.The Northeast region finished the winter 3.6 degrees cooler thatthe 10-year average, the Midwest 4 degrees cooler, and theMid-Atlantic region was 2.9 degrees cooler than the average.

Selective said it would announce its first-quarter earnings onMay 7.