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Intact Financial the first of many players that could be hit by string of disasters
TORONTO – Intact Financial Corp. has become the first of what may be a long line of companies to disclose hits from recent floods in Calgary and Toronto and the train disaster in Lac-Mégantic.
While the full extent of damages and costs stemming from the deluge remain guesswork, estimates show the impact will likely be significant. BMO Nesbitt Burns has pegged flood-related damages as high as $5-billion. Losses after insurance may reach $3.75-billion, it said. Continue reading.
Toronto-based Intact said on Monday that it will record about $257-million of after-tax losses arising from customer claims related to the disasters over the next two quarters. Intact is Canada’s largest property and casualty insurer in an industry that is highly fragmented with numerous players, including most of the big banks, all fighting it out for market share. Depending on the magnitude of the losses, some of Intact’s competitors may follow its lead in disclosing their exposure to the disasters prior to reporting quarterly results.
Intact said it anticipates total house and auto claims of more than $300-million related to the Alberta flood, amounting to an after-tax loss of $105-million net of reinsurance for the second quarter which will be released on July 31.
The Lac-Mégantic train derailment will result in a $25-million hit in the third quarter. The Toronto rainstorm and flood resulted in damage claims of $170-million, the company said.
“The devastation brought on by recent flooding and torrential rain is unprecedented,” Charles Brindamour, the chief executive, said in a statement. “The scope of the damage and destruction that we have witnessed in recent weeks is a stark reminder that we must adapt the protection offered to Canadians to ensure it remains sustainable in light of the greater prevalence and severity of weather events.”
The devastation brought on by recent flooding and torrential rain is unprecedented
Other players likely to be exposed include the insurance subsidiaries of Toronto-Dominion Bank, Royal Bank of Canada and Bank of Montreal.
Industry research firm A.M. Best has estimated that the Alberta flooding in June resulted in total economic loss of as much as $5-billion, but significantly less in claims, probably between $1-billion and $3.75 billion, due to what it called “the relative scarcity” of flood insurance.
“A.M. Best believes that the industry currently is well-positioned from a risk-adjusted capital perspective to absorb the estimated insured losses, and underlying performance trends remain favourable,” the firm said in a note to clients on July 1.
Still, the flooding which hit Calgary as well as surrounding towns and villages ranks as one of the country’s worst natural disasters in recent years, A.M. Best said.
Some insurers with exposure to Alberta such as TD, RBC and Alberta Motor Association have recently come under pressure by local residents because of confusion over contracts that sometimes left policy holders on the hook for flood damage.
On Monday Bank of Montreal said it will hike the amount of credit available to Alberta businesses by as much as $1-billion. That’s in addition to the $4-billion of loans that have already been authorized.
“We want to support Albertans who are affected by damage caused by what is considered to be the worst flooding in decades,” said Robert Hayes, the BMO executive in charge business lending in Alberta. “This new money will provide small and medium-sized businesses with more certainty of available credit and represents BMO’s ongoing confidence in them.”
The cost of recent torrential rains in Toronto could exceed the the $625-million that the insurance industry paid out in damage claims following a severe storm that hit the city in Aug 2005.
Experts say part of the problem is aging sewage systems, built in some cases as much as 100 years ago for a much smaller population.
Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction, said increasingly dense cities, crumbling infrastructure and the changing climate are likely to increase weather-related losses over the coming years.
“We’re building more and more and putting more and more into our cities, so when you get something like a heavy rainstorm — it’s going to hurt a little bit more,” he said.
Jeff Fenwick, an analyst at Cormark Securities Inc., said Intact has been focused recently on repricing home insurance products and providing more specifics around what’s covered and what isn’t.
“About 20 years ago, there weren’t nearly as many people who had finished their basement and put expensive audio visual equipment, and that type of thing, down there,” Mr. Fenwick said.
“So now the magnitude of the losses when your basement floods tends to be quite a bit larger.”
With files from Canadian Press