Nationwide CFO: Acquisition Of Harleysville Added To Sandy Losses

Nationwide is reporting that Hurricane Sandy tallied about $400 million in losses from about 50,000 claims — the first time the company has publicly released the amount of its Sandy losses.

"I think a lesson from any of these catastrophes ... we look hard at our geographic diversification of our businesses," Nationwide Chief Financial Officer Mark Thresher told Best's News Service. "In one sense we did the Harleysville transaction (in 2011) in order to get more exposure in the Northeast and mid-Atlantic, and this time Sandy hit us. But, we're trying to spread out our exposures across the country as much as possible."

However, the storm did not keep the company from posting a fourth-quarter net income of $176 million — up from $35 million a year ago — and a 2012 net income of $940 million, up from a net loss of $677 million in 2011. The company did not release its combined ratio figures.

Nationwide and its subsidiaries fielded about 50,000 claims from Sandy, with about 40,000 of those stemming from Nationwide-branded business, Thresher said. He said about 10,000 claims came from Harleysville companies, and the rest from its Scottsdale companies and other commercial businesses.

Harleysville's book of business is 70% to 80% commercial lines and the balance is personal lines, Thresher said. From a catastrophe-management standpoint, Thresher said the Harleysville deal will help Nationwide in the future because it provides that geographic spread and business line diversification across Nationwide's overall book. Nationwide finalized its $840 million acquisition of Harleysville in May.

Thresher said the company is planning some rate increases this year in personal lines and the company will adjust plans based on the market reaction and competition. He said commercial rates increased in 2012 and some of those increases will continue into this year.

"We continue to balance growth with profitability across the lines and I think also loss experiences and weather experiences will drive some of that," Thresher said. "In commercial, as a whole industry, we're just getting back to more reasonable rates than we've had for a number of years."

Nationwide's property/casualty businesses in 2012 recorded weather-related claims of $1.5 billion, compared with $2.3 billion in 2011. Thresher said along with Sandy, the other notable weather event in 2012 were the derecho storms that swept across the Midwest and into the Middle Atlantic. Those storms brought winds gusting up to 90 mph in a system that was partially by the summer's extreme heat (Best's News Service, July 9, 2012).

The property/casualty businesses reported a 2012 net operating income of $117 million, up from a 2011 net operating loss of $213 million. The segment reported a fourth-quarter net operating loss of $91 million, compared with a net operating income of $8 million in the prior-year quarter. Along with lower-weather related losses, the segment was aided by a 10.2% increase in direct written premiums to $16.2 billion.

Thresher said a significant portion of direct premium growth came from commercial lines — Nationwide's agricultural insurance business, Scottsdale and the company's main street commercial program. "I would say that's a combination of a hardening market, as well as, exposure growth," Thresher said. About $800 million in premiums came from Harleysville and other factors that contributed to growth were a rise in insured values, better customer retention and rate adjustments. Thresher said the company's policy count grew slightly across all of Nationwide's businesses in 2012 over the prior-year, but declined to speak in specific figures.

Nationwide's 2012 financial services net operating income fell to $606 million, from $681 million in 2011. The line includes Nationwide Financial, Nationwide Retirement Solutions, Nationwide Funds Group and Nationwide Bank.

"We intentionally slowed down sales in variable annuities with living benefit guarantees until we got pricing in line with what we were looking for," Thresher said. "We had a really solid year (excluding variable annuities) in both our life insurance business, our retirement plans business and sold a significant amount of fixed and immediate annuities."

Nationwide group companies currently have a Best's Financial Strength Rating of A+ (Superior), while Harleysville Insurance Cos. are rated A (Excellent).

(By Michael Buck, senior associate editor, BestWeek: [email protected])