Dallas Storms Are A Bad Sign For Insurance Companies

by Trefis Team
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The strong rains and winds in Texas are not particularly pleasant for property and casualty insurance companies such as The Travelers Companies (NYSE:TRV) as parts of Dallas and neighboring cities were hit by baseball-sized hail and heavy winds causing damage to businesses, vehicles and homes. [1]

The Southwestern Insurance Information Service, a trade group representing property insurers in Texas and Oklahoma, reported that insurance loses after the storm could be as high as $2 billion, based on the huge volume of complaints received by insurers in the state so far. [2] Insurance companies in the region have labelled the storm a catastrophe, and insurance adjusters throughout the state are converging to help out with the claims as the American Automobile Association (AAA) has declared that over half the cars that came in for a claim were a complete loss.

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Worst Storm in Recent Times

Although no serious injuries were reported, the National Weather Service said that it was the worst hailstorm observed in the region for over nine years. Last week, Travelers announced a wind credit scheme for fortified homes in the state (See Travelers Promotes Safer Building Practices With Wind Credit Scheme) with the aim to reduce risks after having observed huge losses due to natural disasters last year. (See Travelers’ Strong Q1 Earnings Bode Well For Other Insurers) This is the second major storm in the Dallas/Fort Worth area in six weeks. The region reported at least 12 confirmed tornadoes on April 3, 2012, which led to insurance losses in excess of $400 million.

Insurance losses due to hail, winds and floods across the U.S. over 20 years ending 2010 were around $14 billion, according to the Insurance Information Institute. After seeing huge losses in 2011, insurance companies will keep their fingers crossed through 2012 as they seek to avoid further losses from natural calamities.

Travelers’ U.S. business and financial insurance accounts for 73% of our price estimate of the company’s stock. While we currently maintain an optimistic outlook for the division, you can gauge the impact of a change in our forecast by modifying the chart below.

We presently have a price estimate of $63 for Travelers, which is concurrent with the market price.

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Notes:
  1. Dallas Hit with Baseball Size Hail, Insurance Council of Texas, June 14th, 2012 []
  2. Dallas hailstorms pack up to $2 billion wallop, msnbc, June 14th, 2012 []
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