Cincinnati Financial Lost $3 Mil on Rita

Cincinnati Financial Corporation today announced an estimate of $3 million for pretax catastrophe losses resulting from Hurricane Rita and updated its estimates of previously announced catastrophe losses. Total third-quarter pretax catastrophe net losses now are estimated at $66 million, including assumed and ceded reinsurance. The impact on the third-quarter property casualty combined ratio, after an $8 million reinsurance reinstatement premium, would be approximately 8.6 percentage points. Third-quarter earnings (after tax), including the effect of the reinstatement premium, would be reduced by approximately $48 million, or 27 cents per share.

In developing the third-quarter catastrophe losses estimate, the company reduced its estimate of Hurricane Dennis losses to $8 million from $11 million; incurred $3 million from development of prior-period catastrophes; and added assumed losses of $18 million to its initial Hurricane Katrina estimate of $34 million in direct losses, net of reinsurance. The Cincinnati Insurance Company participates in reinsurance treaties that spread the risk of very high catastrophe losses among many insurers. The estimated $18 million of assumed losses from Hurricane Katrina includes $16 million under an agreement with the Munich Re Group to assume 2 percent of property losses between $400 million and $1.2 billion from a single event. On September 28, Munich Re indicated its Hurricane Katrina estimate was in the range of $1.40 billion to $1.65 billion, up from their preliminary estimate.

The loss estimate for each event includes losses from claims received as well as estimates of claims that have not yet been reported. The Cincinnati Insurance Companies do not appoint agencies to actively market property casualty insurance in Louisiana, Mississippi or Texas. Hurricane Katrina and Rita losses in those states primarily are associated with commercial accounts written by agents in other states to cover locations and vehicles in multiple states.

The company purchases reinsurance coverage to limit its losses from catastrophic events such as wind and hail, hurricanes or earthquakes. For Katrina, the company expects to retain $34 million of its policyholders’ estimated $70 million gross losses, ceding $36 million to its reinsurers. Under the 2005 reinsurance program, the company retains the first $25 million in losses arising from a single event and 40 percent of losses from $25 million to $45 million. The company retains only 5 percent of losses between $45 million and $500 million. To restore the property catastrophe reinsurance program following Katrina, the company incurred an $8 million reinstatement premium in the third quarter.

Cincinnati Financial Corporation offers property and casualty insurance through The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company.

Topics Catastrophe Profit Loss Hurricane Reinsurance Property