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P&C stocks hold steady amid Q3 catastrophe loss estimates

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P&C stocks hold steady amid Q3 catastrophe loss estimates

Property and casualty insurers saw little fluctuation in their share prices during the week that many disclosed estimated third-quarter catastrophe losses.

The projections come ahead of their third-quarter earnings releases, in which insurers will elaborate on the impacts of Hurricanes Harvey, Irma and Maria, as well as the earthquake that hit Mexico City.

For the week ending Oct. 12, the SNL Insurance Index fell 0.71% to 981.88, while the S&P 500 rose 0.06% to 2,550.93.

While the estimates ranged in severity, some insurers, such as American International Group Inc., are expected to see a notable impact to quarterly results, said CFRA Research Director Cathy Seifert, who called AIG and XL Group Ltd's estimated catastrophe losses as "standout numbers."

"Given the magnitude of these losses, I think that particularly for property lines of coverage, and for some commercial lines of coverage, pricing is bound to firm," Seifert said in an interview. "I can't see where it won't."

AIG expects to report pretax catastrophe losses, net of reinsurance, between $2.9 billion and $3.1 billion for the third quarter. The company specifically added that Harvey, which battered southeast Texas and parts of Louisiana, and Irma, which hit parts of the Caribbean islands and Florida, will bring losses upwards of $1.2 billion and $1.1 billion, respectively.

Since naming Brian Duperreault as president and CEO in May, AIG has been undergoing a series of changes including building up its technology platforms and streamlining its business lines, Seifert said. But AIG's estimated catastrophe losses will also "significantly ding earnings" in 2017, she said.

Still, AIG's stock has risen since it reported its expected catastrophe losses Oct. 9. For the week, the company's stock is up 0.47% to $62.55. Seifert said investors are likely "playing wait and see" as they weigh the positive momentum AIG has seen under Duperreault against the losses.

"There's a lot of moving parts going into this quarter, and I think the end result is you've got people waiting and watching," she said. In an Oct. 10 research report, Seifert lowered her expected full-year operating EPS estimate for AIG to $3.30 from $5.30 as a result of the estimated losses.

On Oct. 11, XL Group said it projects net losses from Harvey, Irma and Maria to be about $1.33 billion. But the estimated losses largely aligned with expectations, said Morgan Stanley analyst Kai Pan, who added that the losses are "manageable" in an Oct. 11 note. For the week, XL Group shares were up 2.78% to $40.67.

One of the largest losses among insurers tracked by S&P Global Market Intelligence came from managed care company Molina Healthcare Inc., which saw its share price fall 6.54% to $63.42 for the week.

The majority of the decline came in the wake of the company's Oct. 10 announcement that Hanover Insurance Group Inc. President and CEO Joseph Zubretsky will take over as president and CEO of Molina, effective Nov. 6.

Zubretsky takes over the position from interim president and CEO Joseph White, who will stay on at Molina as CFO. Wells Fargo Securities senior analyst Peter Costa said Zubretsky brings a "strong financial background and broad industry experience" to Molina.

But Costa added that Zubretsky's hiring could indicate that Molina's board is weighing a potential sale or other strategic options, which some analysts suggested as a possibility following the company's leadership shakeup in May.

"[Zubretsky's] hiring suggests that [Molina's] board believes the company's problems are more with its balance sheet, financial controls and less about operations," Costa wrote in an Oct. 11 note.