Analyst Sees U.S. Insurers’ Q2 Hurt by Flood Claims

A group of insurers who cover farmers in the event of catastrophe-driven losses are facing their worst claims in 15 years due to flooding in the Midwest, said a Lehman Brothers analyst, who cut second-quarter earnings estimates on some of the crop insurers.

Ace Ltd, XL Capital, PartnerRe Ltd and RenaissanceRe Holdings Ltd are all expected to be affected, analyst Jay Gelb said in a research note.

Gelb said several insurers had increased sales of crop insurance to offset a slump in pricing for traditional property and casualty policies. Some experts estimated crop-insured losses could be in excess of $3 billion in Iowa alone, the worst state affected by the flooding, a view that also takes into account higher commodity prices, Gelb said, in the note.

Multiple-peril crop insurance covers a wide range of yield-reducing conditions, according to New York-based trade group, the Insurance Information Institute.

The coverage can include such things as damage to crops from drought, flood or insect infestation, and is subsidized by the federal government.

Lehman cut its second-quarter earnings estimate for Ace, the largest U.S. provider of crop insurance, by 40 cents a share to $1.60. Ace shares were down 1.5 percent, or 90 cents, at $57.63

XL, which also provides crop insurance, is also seen posting lower second-quarter earnings, Gelb said, cutting his outlook for earnings per share to $1.75 from $1.85.

Lehman lowered its estimate for second-quarter earnings for PartnerRe by 15 cents to $2.55 a share, and for RenRe to $1.95 from an earlier estimate of $2.05 a share.

XL shares fell 38 cents to $29.71; PartnerRe shares were down 83 cents, or 1.14 percent, at $71.19; and RenRe shares fell 1.42 percent to $46.53.

Ace, XL, RenRe and PartnerRe are all Bermuda-based insurers, primarily selling property/casualty insurance or reinsurance. Reinsurers, such as RenRe and PartnerRe, provide insurance to other insurers, spreading the risk of losses among several carriers. For reinsurers there is typically a lag in receiving claims from catastrophes because primary insurers are notified first.

Ace, XL and RenRe could not immediately be reached, and PartnerRe declined to comment on Lehman’s note.

Damage to homes from the flooding is unlikely to trigger large claims because most homeowners’ and renters’ insurance policies do not include flood coverage. Only 17 percent of Americans buy the coverage, according to the Insurance Information Institute.