Cincinnati Financial Expects Up to $290M in Storm Losses for Q2 2011

Cincinnati Financial Corp. reported that The Cincinnati Insurance Companies’ property casualty group expects its second quarter 2011 results to include pre-tax catastrophe losses, net of reinsurance, of approximately $240 million to $290 million due to severe weather during April and May.

This total includes the company’s previously announced catastrophe loss estimate for April storms, which has now been updated to approximately $155 million to $190 million, net of reinsurance.

Steven J. Johnston, president and chief executive officer, commented, “Much of the United States continued to see a higher than usual level of spring storm activity, raising our catastrophe losses well above our historical second-quarter average. The same storm system that caused the tragic tornado in Joplin, Missouri extended to Dayton, Ohio where hail damaged property of more than 5,000 policyholders.”

Johnson said the impact of catastrophes on the company’s second quarter loss ratio has averaged 8.5 percentage points during the past 10 years, compared with an annual average of 4.4 points.

“The estimated impact of April plus May 2011 catastrophe losses on our second-quarter loss ratio would be approximately 33 to 40 percentage points, net of reinsurance and based on estimated earned premiums for the full second quarter. The mix of total April and May net catastrophe losses was split between commercial lines and personal lines, at approximately 50 percent each, roughly in line with our 10-year annual average,” Johnson said.

Reinsurance is in place for losses above $45 million from a single catastrophe and losses were higher than that “for both the May tornado and hail event and the late April tornado event. Accordingly, we expect to recover significant amounts from our reinsurers,” he said.

Reinsurance premiums are expected to reduce the company’s Q2 2011 earned premiums by as much as $40 million, including the $26 million reported after the April tornado.

“For the remainder of 2011, we continue to have reinsurance coverage for any single catastrophe event that causes losses above $200 million up to $500 million, with one automatic reinstatement provision. While we may not again buy coverage for 2011 single-event catastrophe losses between $45 million and $105 million, we are studying options and we expect to replenish coverage we partially tapped for single-event losses above $105 million and up to $200 million. Our reinsurance relationships have served us well in 2011, and we are pleased to continue our coverage with highly rated reinsurers,” Johnson said.

He noted that the company has been adding market share in states that are less prone to catastrophe losses in recent years. Over the long term the company expects that geographic diversification will reduce the “variability in our future catastrophe loss ratio,” Johnson said.

Source: Cincinnati Insurance Corp.