The Hartford Financial Services Group, Inc. HIG recently disclosed projections about catastrophe losses and prior year reserve development figures for its first-quarter 2021 results, which is scheduled to release on Apr 29, 2021.
Net of reinsurance, the company’s current accident year catastrophe losses are projected to be roughly $214 million, before tax, in the first quarter. Out of this, catastrophe losses of around $176 million, before tax, have stemmed from winter storms in February, which inflicted severe damage in the state of Texas and other areas as well. The winter storms led to snowfall and damaging ice across the United States that resulted in record cold temperatures, which sustained for quite a few days.
Furthermore, Hartford Financial anticipates before-tax unfavorable prior year development of nearly $225 million in the first quarter. Along with other items, the estimated figure also encompasses a charge to raise reserves higher than the amount previously settled for addressing the Boy Scouts of America (BSA) settlement. It has to be noted that the company recently inked a Settlement Agreement with BSA as a result of which Hartford Financial will be entitled to pay $650 million, before tax.
Shares of this Zacks Rank #3 (Hold) company have soared 71.5% in a year compared with the industry’s rally of 58.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The business of a property and casualty (P&C) insurer is always susceptible to severe catastrophe losses and Hartford Financial being a leading U.S. P&C insurer is also exposed to this. This, in turn, puts pressure on the company’s underwriting results, consequently dampening bottom-line growth. Case in point, the company struggled with catastrophe losses last year as well, wherein current accident year catastrophe losses, net of reinsurance, increased 30.9% from the 2019-end level.
Back-to-back catastrophic events coupled with COVID-19 incurred losses in property, workers’ compensation and financial and other lines, and reduced lower earned premiums resulted in underwriting losses incurred during 2020 when compared with the 2019-end underwriting gain. Catastrophe losses, increase in prior-year reserve development and the payment that Hartford Financial has to make related to the BSA Settlement Agreement are likely to act as a drag on the company’s earnings in the days ahead.
Nevertheless, the company buys reinsurance to minimize exposure to huge losses and for efficient management of its risk portfolio to cope with the high-scale incidence of catastrophe losses. With the widespread rollout of COVID-19 vaccines across the United States, the company expects decline in COVID-19 claims, which are likely to result in improved combined ratio during 2021. While current accident year catastrophes have accounted for 4.5 points of the combined ratio in the past year, the same is expected to form 3.1 points of the combined ratio in this year.
Other P&C insurers have also released their catastrophe loss estimates for the first quarter. RenaissanceRe Holdings Ltd. RNR recently disclosed that it anticipates a net negative impact of roughly $180 million on first-quarter 2021 operational results. AXIS Capital Holdings Limited AXS estimates first-quarter 2021 catastrophe loss of $105-$115 million pre-tax. The Allstate Corporation ALL expects first-quarter 2021 catastrophe losses of $466 million, after-tax.
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