Insurers including Travelers Cos., Swiss Re AG and Munich Re fell as the U.S. east coast prepared for Hurricane Sandy, which may cost the industry as much as $6.3 billion, according to Kinetic Analysis Corp.
Insurance was the worst-performing industry in the STOXX Europe 600 Index, down 1.6 percent compared with the index's 0.7 percent decline at 11:32 a.m. in London. Munich Re traded 2.1 percent lower at 121.75 euros, Swiss Re fell 2.6 percent and New York-based Travelers dropped 0.9 percent in European trading.
"It is heading for a region with huge population density and a region which has not been hit by a hurricane for a long time," Fabrizio Croce, a Zurich-based insurance analyst at Kepler Capital Markets, wrote in a note to clients today. "Inhabitants have not been able to rebuild new homes recently and therefore incentives to claim for any damage are huge."
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U.S. public officials from Virginia to Massachusetts have shut schools, halted travel and prevented stock markets from opening, disrupting the lives of as many as 60 million people, as the hurricane approaches. The storm, dubbed "Frankenstorm" by the National Weather Service, is predicted to make landfall late today in southern New Jersey then turn inland, according to the National Hurricane Center in Miami.
AllState Corp. fell 0.7 percent to $39.87 in European trading. American International Group Inc. dropped 0.8 percent to $34.44 while Catlin Group Ltd. led Lloyd's of London insurers lower, falling 4 percent to 454.3 pence.
Waves could reach six to 11 feet around the New York Harbor should the winds coincide with high tide, according to Risk Management Solutions, a catastrophe modeling firm used by insurers. A water surge at New York's Battery Park expected later today will be two feet higher than during Hurricane Irene last year, according to the National Weather Service.
Losses from the storm may be as much as $6.3 billion with the biggest insurance claims in Pennsylvania, according to data from KAC compiled by Bloomberg. Irene cost insurers $4.3 billion, according to data compiled by the Insurance Information Institute.
Weak Winds
Claims may be about $3 billion should the winds remain a relatively weak Category 1 storm, Croce said. At that level the losses are unlikely to reach reinsurance limits, meaning claims will be borne by primary insurers, he said.
Primary insurers such as such as Allstate and Travelers typically buy reinsurance from firms including Munich Re and Swiss Re to protect themselves against losses. Lloyd's of London insurers such as Catlin sell both primary insurance and reinsurance.
Insurers' capital reserves remain "fat" as they have not had to pay for any severe losses in 2012, according to Eamonn Flanagan, a Liverpool, England-based analyst at Shore Capital Group Ltd. Firms such as Beazley Plc, Hiscox Ltd. and Lancashire Holdings Ltd. may reduce planned capital returns to shareholders to pay for losses and take advantage of higher premium rates following the storm, he said.
Bloomberg News
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