IMPORTANT POINTS:
- Hurricane Milton hits insurance stocks due to million-dollar losses.
- Insurance stocks fall on fears of losses from Hurricane Milton.
- Losses from Hurricane Milton shake the insurance market.
Hurricane Milton hits insurance stocks due to million-dollar losses
Property and casualty insurance and reinsurance stocks are getting hit hard on Monday as Hurricane Milton has rapidly strengthened over the past 24 hours in the Gulf of Mexico and heads toward Florida’s Gulf Coast.. Milton is now a Category 5 storm with winds of 160 miles per hour and could hit the densely populated Tampa metropolitan area with about three million people—second only to the Miami area in the state.
KBW analyst Meyer Shields wrote in a client note on Monday that Milton could cause “very significant insured losses” of more than 10,000 million dollars. The storm followed Hurricane Helene, which caused extensive damage primarily from flooding; The majority of Helene’s losses are expected to be uninsured, thus limiting the impact on public insurance companies. Investors are concerned that reinsurers in particular could suffer significant losses from Milton.
Impact on industry leaders and Florida insurers Reinsurance Stocks Taking the Hardest Hit:
Arch Capital down 6.2% a 107,79 USD.
Everest Group falling 8.5% a 372,55 USD.
RenaissanceRe Holdings decreasing by 9.3% a 253,81 USD.
Reinsurance Stocks Are the Worst Performing Group on the Stock Market This Monday. Shields wrote that Florida-focused insurers have relatively low attachment points in their reinsurance policies, which could lead to potentially higher losses for reinsurers, which provide insurance to primary insurers and allow them to pass on risk.
The actions of the industry leader:
P&C, Chubb, they are down 4.6% a 277,18 USD.
Travelers (TRV) fell 4.3% to $225.97.
Progressive (PGR) fell 3.9% a 245,52 USD.
Berkshire Hathaway, which has significant exposure to P&C insurance, decreased by 1.8% at $453.50 based on the company’s Class B shares.
Insurers with disproportionate exposure in Florida are being hit hardest.
American Coastal Insurance, the number one provider of commercial residential insurance in the state, saw its shares fall 15.3% a 9,49 USD.
Heritage Insurance fell 23.4% at 9.34 USD. About a quarter of Heritage’s total insured value is in Florida, according to a presentation on its website. Universal Insurance fell 19.5% to $16.90. It is one of the largest home insurers in Florida.
Concerns about potential losses and future prospects
Reinsurers like Everest have sought to limit their hurricane risk in Florida, but investors don’t seem reassured. In its second-quarter earnings presentation, Everest, a top 10 global reinsurer, said it would take an 8.4% after-tax hit to its capital from a southeastern hurricane that has a 1% chance of occurring. in a given year.
Everest’s book value was about $330 per share as of June 30, implying a potential loss of $25 to $30 per share from such a storm, Barron’s estimates. Everest shares fell $35 on Monday, suggesting investors may be being too pessimistic about potential losses from Milton, Helene and other storms this season.
Barron’s wrote favorably about Everest in the summer, arguing that the shares, which now trade at 1.1 times book value, looked attractive. The stock also trades at about six times projected 2025 earnings.
The silver lining for reinsurers is that large losses could result in higher premiums in 2025 for hurricanes and other catastrophic events.. KBW’s Shields wrote the same thing in his client note on Monday, saying property catastrophe reinsurance rates could be pushed higher at the next big renewal date on January 1.
Expert analysis and market trends
Cathy Seifert, analista de CFRA Research, says Monday’s sell-off in P&C insurers and reinsurers follows the sector’s strong performance this year with gains of 30% or more, making these companies some of the best performers in the financial sector. Seifert says it is not surprising that there was profit taking given the possibility of considerable losses for Milton.
P&C Stock Gains This Year Reflect Investor Optimism About Continued Strong Pricingparticularly in auto insurance, and higher investment income as companies reinvest proceeds from maturing bonds into new bonds with higher yields. Seifert notes that there have been some signs of softening in insurance rates in the second quarter.
Loss estimates and insurance market in Florida
CoreLogic recently updated its Helene loss estimates, suggesting that private insurers could suffer losses of $6 billion to $11 billion, a fraction of the storm’s total losses of $30 billion to $47.5 billion. Most homeowners policies provide little or no coverage for floods, which caused most of Helene’s damage in the Southeast.
That total seems manageable for the industry and the sector remained strong on the stock market last week. Shields estimated that Helene could cause losses in the range of $400 million to $500 million for Progressive and Berkshire, which had the two largest exposures in the industry.
“Helene will likely represent an economic, public policy and politicized event rather than an insurance event. The pattern of these storms is becoming more unpredictable and affecting areas that historically have not been considered hurricane hotspots.”
Seifert told Barron’s.
The home insurance market in Florida has been in turmoil over the past decade, as National insurers have left the market due to storm risk. As a result, losses for major primary insurers could be limited.
