Property and casualty insurer Tower Group Inc (TWGP) today announced its estimation for first quarter 2010 catastrophe loss. The company approximated a total after-tax catastrophe loss from the northeast storm in the range of $7.2 million to $9.1 million according to preliminary estimates. 

Prior to this, the company had suffered from Hurricane Ike that occurred in the third quarter of 2008, in the Gulf of Mexico area, causing $1.8 million in net losses. 

Catastrophe losses adversely affect combined ratio, a measure of insurers’ profitability. Tower Group’s combined ratio was 94.7% at the end of fourth quarter 2009. At the time of the earnings release, management announced its expectation for combined ratio to come down to 92% for the first two quarters of 2010, before shrinking further, to 90% levels. The company’s 5-year average combined ratio was 86%. However, we expect the loss incidence from the catastrophes to add up to the ratio. 

Last month, Tower Group announced its intention to purchase the personal lines unit of One Beacon Insurance Group at a cost of $180 million. The acquisition will lead to the combination of its personal lines business with that of the acquired company, which will lead to the creation of a separate business segment within Tower Group. This business segment will consist of passenger automobile and homeowners policies. 

Other insurers and reinsurers who suffered from the early 2010 catastrophe includes AXIS Capital Holdings Limited (AXS), which expects to incur net losses of $60 million to $125 million from the Chilean earthquake and between $10 million and $20 million from Windstorm Xynthia. Besides, Max Capital Group (MXGL) has had low catastrophe losses, estimated in the range of $10 million to $20 million.
 
Tower Group’s fiscal 2010 first quarter results will suffer by 16 to 20 cents. The company is slated to release the results on May 10, 2010, before the opening bell.
Read the full analyst report on “AXS”
Read the full analyst report on “MXGL”
Read the full analyst report on “TWGP”
Zacks Investment Research