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Winnipeg Free Press - PRINT EDITION

Reinsurers face big hit from Sandy

Storm damage could reach $20B

By: Sunny Freeman

Posted: 10/31/2012 1:00 AM | Comments: 0

TORONTO -- Canadian financial service companies in the reinsurance business could take a financial hit from Sandy, the furious superstorm that has all but shut down the Eastern Seaboard.

The storm roared ashore on the New Jersey coast Monday night and also brought heavy rains, strong winds and high waves in parts of Ontario, Quebec and the Maritimes.

The National Hurricane Center in Miami said the centre of the enormous storm made landfall at 8 p.m. near Atlantic City, after it was reclassified from a hurricane to a post-tropical cyclone.

Preliminary estimates are damage will range between $10 billion and $20 billion. That could top last year's hurricane Irene, which cost $15.8 billion.

If so, Sandy would be among the 10 most costly storms in U.S. history. But it would still be far below the worst -- hurricane Katrina, which cost $108 billion and caused 1,200 deaths in 2005.

Peter Morici, a professor at the University of Maryland, pegs the economic impact in the U.S. even higher -- at about $35 to $45 billion.

"It seems likely that Sandy will impose greater destruction of property and add to that the loss of about two days commercial activity, spread over a week across 25 per cent of the economy," he said.

Canadian companies who provide reinsurance to property and catastrophe insurance companies, such as Bank of Montreal, Great-West Lifeco and Manulife Financial Corp. could see a drag on earnings in the fourth quarter if damage is significant, said RBC analyst Andre-Philippe Hardy.

Reinsurance companies write backup insurance for primary insurers so the insurance industry can cover catastrophic claims, such as from natural disasters. The impact on the companies depend on many factors, such as how much of the damage was insured by them and how much they charged for coverage.

In Monday trading on the Toronto Stock Exchange, BMO shares closed 17 cents lower at $59.57, Great-West Life lost nine cents to $22.70 and Manulife stock was down 1.3 per cent or 16 cents at $12.14.

Wall Street markets were closed until at least today in the face of the storm. The last time trading was halted for two consecutive days due to weather was in 1888.

However, Hardy said he didn't think the effects would have a lasting impact on their stock values.

"For all three institutions, exposure is generally at a level that represents a potential drag to quarterly earnings -- i.e., the exposures are managed to be below a size that would erase quarterly earnings or cause a capital issue. As such, investors usually look at catastrophe hits as one-time and there is no lasting effect on stocks."

Hardy pointed to financial impacts on those three companies related to earthquakes in Japan and New Zealand in 2011 as examples of their risk-management strategies.

Great-West booked $84 million in net negative impacts, while Bank of Montreal had $55 million.

Manulife was hardest hit by the Japanese earthquake and had a $151-million after tax losses related to the disaster, and Hardy believes it also has the largest exposure to U.S. hurricanes.

-- Canadian Press, with files from AP

Republished from the Winnipeg Free Press print edition October 31, 2012 B8

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