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17-07-2012 18:22:00

EARNINGS PREVIEW: Disasters Less Disastrous for Insurers in 2nd Quarter

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By Erik Holm

TAKING THE PULSE: With massive hailstorms in Texas, flooding in Florida and wildfires in Colorado, the second quarter was busy for U.S. property-casualty companies, even before a late-June storm caused widespread losses across the Midwest and mid-Atlantic.

Insurers including Hartford Financial Services Group Inc. (HIG) and Chubb Corp. (CB) have already warned investors that those disasters cost them millions of dollars, but the combined costs from the catastrophes pale in comparison to the damage done by massive tornadoes in the second quarter of 2011. Relative to last year, many insurers are likely to report improved results.

But on Wall Street, improving earnings are only part of the story. Analysts have expressed surprise at the size of the estimated catastrophe costs put out by insurers in recent days, and companies that don't pre-announce their second-quarter disaster claims in time for analysts to update their models may fail to meet earnings expectations.

Catastrophe claims are only part of the story. Wall Street will also be listening closely when insurers discuss efforts to raise prices, combat rising claims costs and counteract the effects of low investment yields.

COMPANIES TO WATCH:

Travelers Cos. (TRV) - reports July 19

Wall Street Expectations: Analysts surveyed by Thomson Reuters expect an operating profit of $1.38 a share. For the same period a year earlier, tornadoes pushed Travelers to an operating loss of 91 cents a share. Operating results, the measure preferred by analysts, excludes some investment results.

Key Issues: As one of the largest insurers of businesses in the U.S., Travelers executives will have Wall Street's attention when they discuss the pricing environment for commercial insurance. Analysts have expressed concern in recent weeks that hard-won price increases taken by property-casualty companies in recent quarters may have tailed off somewhat in the latest period, and they will be listening closely to see if Travelers Chief Executive Jay Fishman concurs.

Allstate Corp. (ALL) - reports July 31

Wall Street Expectations: Analysts currently expect operating income of 85 cents a share, though analysts may adjust their estimates if Allstate pre-announces catastrophe losses later this week. A year ago, Allstate had an operating loss of $1.23 a share.

Key issues: Allstate surprised Wall Street with improved results in the first quarter as efforts to increase the profitability of its home-insurance unit looked to be paying off. Analysts will look to see if the trend continued and will examine the underwriting results and policyholder count of the auto-insurance operation. The auto-insurance unit, the company's largest, has been steadily losing customers for years and has been raising rates in recent months to counteract rising claims costs in New York and Florida.

Hartford Financial Services Group Inc. (HIG) - reports Aug. 1

Wall Street Expectations: Thomson Reuters said analysts expect core earnings of 55 cents a share, a figure that may change after Hartford provided an estimate of its catastrophe losses late Monday. Hartford had core earnings near zero a year earlier. Core earnings are Hartford's measure of operating results.

Key Issues: The company is refocusing around its property-casualty operations, but for now, Wall Street will be listening for any update from executives on the company's plan to sell off its life insurance business and unload its legacy annuity book. Executives may also discuss claims trends in its workers' compensation book and provide further color on the company's pre-announced reserve charge of about $45 million to $55 million related to its asbestos book, a figure that appeared low enough to please analysts.

American International Group Inc. (AIG) - reports Aug. 2

Wall Street Expectations: Wall Street predicts an operating profit of 59 cents a share. AIG earned 69 cents a share a year earlier.

Key Issues: Investor attention at AIG has focused on how quickly the company can sell off noncore assets like plane-lease unit International Lease Finance Corp. and rid itself of its largest shareholder, the U.S. Treasury. An update on the amount of cash it has available to buy back the government's stake will be of great interest, as the next round of sales by Treasury could come as soon as August. The company will also discuss its two main insurance operations, a U.S. life insurer and a global property-casualty company, that make up the core of the revived company.

(The Thomson Reuters estimate and year-ago figures may not be comparable due to one-time items and other adjustments.)

Write to Erik Holm at erik.holm@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

July 17, 2012 12:22 ET (16:22 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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