Alleghany Estimates Q4 Catastrophe Loss Of Nearly $75M

Alleghany Corporation (NYSE:Y) recently unveiled its estimated pre-tax catastrophe loss levels for the fourth quarter of 2016. The company projects fourth-quarter catastrophe loss to be less than million $75 million, net of reinsurance and reinstatement premiums. The expected losses primarily account for the impact of Hurricane Matthew.

The cat loss estimate comprises losses from the company’s subsidiaries – Transatlantic Holdings, Inc. and RSUI Group, Inc. Both these units are likely to have an equal contribution to the total loss.

As a property and casualty insurer, Alleghany Corporation is exposed to losses from natural disasters, which in turn, affects its underwriting results. We expect the cat loss incurred to weigh on the insurer’s underwriting profitability and combined ratio in the fourth quarter.

In the third quarter, the insurer’s underwriting results improved due to a favorable catastrophe environment. Underwriting profit increased 17.8% and combined ratio remained flat, both on a year-over-year basis. Catastrophe losses, net of reinsurance, were $32.1 million down 12.3% year over year.

The Zacks Consensus Estimate for Alleghany Corporation’s fourth-quarter earnings is currently pegged at $5.78, translating into a year-over-year decrease of 31.5%. We expect the estimate to move down as analysts incorporate the impact of catastrophe loss.

Given that companies from the property and casualty insurance industry frequently incur catastrophe losses, insurers are coming up with fourth-quarter estimates for catastrophe loss stemming from Hurricane Matthew. The industry is likely to incur between $3 billion and $9 billion in loss. Among the industry participants, Chubb Limited (NYSE:CB) projects catastrophe loss of $200 million pre tax, while Everest Re Group Ltd. (NYSE:RE) is expected to incur cat loss of $75–$200 million in the fourth quarter. AXIS Capital Holdings Limited (NYSE:AXS) estimates after-tax net losses, related to Hurricane Matthew, to range between $45 million and $60 million.

Zacks Rank

Alleghany Corporation sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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