While it is still early in the recovery process for Hurricane Irene, given weaker-than-expected wind speeds, particularly for New York metro area landfall, FBR Capital Markets believes it is safe to say that loss expectations are lower than many investors thought last Thursday and Friday when forecasts shifted to show a more inland path for the storm.

"Since it is early in the recovery process and as of this publication time and we have not heard the full array of loss estimates from the risk modeling agencies, we have provided company loss estimates (after reinsurance) for a $3 billion, $6 billion, and $9 billion mainland U.S. industry loss," said Randy Binner, an analyst at FBR Capital Markets.

Binner has based his estimate on homeowners and commercial market share for affected states for Allstate Corp. (NYSE: ALL), Hartford Financial Services (NYSE: HIG), MetLife Inc. (NYSE: MET), Travelers Companies Inc. (NYSE: TRV) and Tower Group Inc. (NASDAQ: TWGP).

While the industry loss is still in flux and reinsurance may be more complicated than the disclosures Binner looked at, it appears that this event will cost insurers with significant market share of the event (Allstate, Travelers, Tower Group) a good portion of third quarter of 2011 EPS.

At this point, it appears Irene will clearly be more of an earnings than a capital event; thus, the potential of this event to tip the balance toward a harder pricing environment appears limited.

Shares of Tower Group have significantly underperformed other exposed insurers. In the last two trading days, Tower Group was down 9.2 percent, compared to down 2.9 percent for Allstate, down 2.4 percent for Travelers and down 1.4 percent for Hartford.

While these other names reflected the trade-off between expected loss and the prospect for better pricing, which Binner historically sees ahead of hurricane landfalls, Tower Group clearly underperformed given its New York metro area concentration.

While Binner certainly still expects to see a material level of loss for Tower Group on this event, given the weaker New York area landfall, he believes the market was discounting a higher level of loss.

Binner's analysis shows this to be an earnings, rather than a capital event, with $0.95 to $1.49 of loss estimated for Tower Group. He currently forecasts $1.59 in second half of the 2011 earnings.

Tower Group's catastrophe cover was designed to make, other than a mega catastrophe, a loss of only one to two quarters worth of earnings. At $21.79, shares are now trading at 7.0 times 2012 EPS of $3.10, which should not change, unless investors are anticipating a similar storm next year.

Binner said based on a $4 billion industry event, the loss is estimated to be $0.43 for Allstate, $0.23 for Hartford, $0.04 for MetLife, $0.69 for Travelers and $1.27 for Tower Group. He is not attempting to estimate the event size; this is simply the midpoint of the $2 billion to $6 billion industry event sensitivity analysis.

For Allstate, Hartford and Travelers, Binner does not think the companies' individual losses will either trigger reinsurance coverage or trigger significant reinsurance coverage. Thus, he believes these companies will likely retain nearly all to all of their losses from Irene.

"We estimate that Tower Group will likely benefit from its reinsurance coverage program, limiting its loss to $95 million pretax or $1.49 after-tax EPS. While this amount could be close to wiping out two quarters worth of earnings for Tower Group, we believe losses from Irene are very likely capped at this amount," said Binner.