Superstorm Sandy won't put insurers' finances under severe strain, and may allow them to push through a profit-boosting rise in prices next year, Hiscox, the biggest London-listed reinsurer, said on Monday.
Sandy killed at least 113 and caused severe damage across a swathe of the north-eastern United States including New York last week. According to early estimates, insurers face a claims bill of up to $20 billion, potentially making Sandy the U.S.'s fourth-costliest natural catastrophe ever.
But the industry should be able to cope, as the storm falls well within the range of catastrophe scenarios insurers use to test their balance sheets, Hiscox Chief Executive Bronek Masojada said.
"It's within the zone of what we model for this sort of thing, which is why it's going to be manageable for us and for the rest of the industry as well," Masojada told Reuters.
Insurers are well equipped to absorb claims from Sandy because a relative absence of big natural disasters over the first ten months of the year has left them with abundant cash reserves.
"We see the UK stocks making good profits this year despite Sandy," said Numis Securities analyst Nick Johnson.
"I'd be very surprised if it caused trading losses."
However, Sandy could still jeopardize plans by some insurers to return spare cash to shareholders in the form of special dividends or share buybacks, Johnson and other analysts say.
Hiscox, among those expected to hand back cash to investors, said it would make a final decision early next year once it had a clearer idea of Sandy's financial impact. It did not provide an estimate of its exposure.
Bermuda-based Hiscox is the first of five London-listed insurers and reinsurers operating in the Lloyd's of London LOL.UL market to give a trading update since Sandy struck on October 30. Rival Beazley (BEZG.L) follows on November 7.
Masojada said Sandy could push up the price insurers pay to protect themselves against unexpected claims for damage to homes or businesses by up to 5 percent next year, reversing a decline in 2012.
The price paid by households and businesses to insure their property is also likely to resume an upward trend which faltered earlier this year, he said.
Insurance prices have traditionally risen in the wake of big natural catastrophes as a surge of claims prompts weaker players to withdraw, freeing those still in the market to charge more.
However, catastrophes have had less of an impact on pricing in recent years because the industry's big reserves of spare capital allow it to absorb losses more comfortably.
Hiscox had sales of 1.2 billion pounds ($1.9 billion) in the nine months to September 30, an increase of 6.4 percent, it said in a trading statement.
Hiscox shares were down 2 percent at 1325 GMT, making them the second-steepest faller in the FTSE non-life insurance index. The stock is still up 27 percent since the start of the year, outperforming the index's 18 percent rise.
© 2014 Thomson/Reuters. All rights reserved.