Andrew Bary

Property and casualty insurance stocks rallied Thursday as Hurricane Milton avoided a direct strike on Tampa, and appears to have been less destructive than earlier feared.

Milton made landfall Wednesday on the Florida Gulf Coast near Sarasota, about 70 miles south of Tampa, as a Category 3 storm and moved rapidly across the state.

"The hurricane's relatively rapid weakening and its landfall location (not a direct hit to Tampa) suggest insured losses closer to the lower than the higher end of the $30-$40 billion range previously estimated," wrote KBW analyst Meyer Shields in a client note Thursday, citing a previous estimate from reinsurance broker Gallagher Re.

Earlier this week, potential losses estimates ran as high as $100 billion or more when the storm appeared headed for Tampa, which has three million residents and is the second largest metropolitan area in Florida behind Miami. Much of the Tampa area is low lying and vulnerable to storms.

One insurance analyst, however, says the losses could be higher than some are now forecasting.

"We still think it would be a $40-50B industry insured loss event given additional tornado activity tied with the storm," says Chai Gohil, global insurance analyst at Neuberger Berman. He also cites the potential for an increase in litigated claims and expensive rebuilding costs, given high demand for building materials and contractors. "Some industry catastrophe modeling estimates have ranged the storm impact between $20-35B, which we think would get revised higher as the insurance industry works through its claims process."

Property insurance and casualty insurance stocks had fallen sharply on Monday on concerns about the storm's possible destruction. But P&C insurance stocks rose Tuesday and Wednesday as investors began to anticipate that the storm might not be as bad as feared.

Those gains continued Thursday. Among reinsurers, RenaissanceRe Holdings stock was up 0.7% to $275.68 in recent trading; Everest Group edged 0.7% higher to $391.75, and Arch Capital Group gained 1.1% to $114.35. RenaissanceRe and Arch are closing in on 52-week highs and are up sharply this year, with Arch gaining over 50%.

The entire P&C sector has been strong this year, boosted by strong pricing for many types of insurance policies and a rally in bonds that began at midyear -- although bonds have sold off mildly in the past month. Insurers have big fixed-income portfolios.

Reinsurers tend to take larger losses relative to their capital from big storms than primary insurers like Travelers and Chubb. Reinsurers provide insurance to primary carriers and so-called low attachment points on that coverage can lead to sizable losses for reinsurers. A low attachment point means that reinsurance kicks in at relatively low loss levels.

Chubb stock rose 1.3% to $226.57 in early trading Thursday; Allstate climbed 1.8% to $118.17 and Progressive gained 1% to $253.23. Berkshire Hathaway, however, was lower with the Class B stock off 0.3% to $454.43 Thursday. Berkshire has a large P&C insurance business, including auto insurer Geico.

One negative for insurers is that with Milton losses coming in lower than expectations, pricing for reinsurers might not be as strong at the coming renewals in January 2025. Reinsurers often provide catastrophe insurance to Florida carriers each year.

Florida is unusual among large states because major national insurers have small market shares in the $19 billion (annual premium) homeowners market. They have exited the state due what they view as inadequate rates relative to risk -- due to frequent and damaging hurricanes. There also has been rampant and costly insurance fraud in Florida that the state legislature has sought to address.

The largest homeowners insurer with a nearly 20% market share is the state-run Citizens Property Insurance.

Other regional and Florida-based carriers have also taken up the slack in the homeowners market. Some of those stocks were hard hit earlier this week and were rebounding Thursday.

Shares of Universal Insurance, the No. 2 carrier behind Citizens in the Florida homeowners market, jumped 9% Thursday to $18.49. American Coastal Insurance rose stock 5.7% to $9.90 and Heritage Insurance was 6.6% higher at $10.29. American Coastal and Heritage are large players in the commercial residential market in Florida.

Write to Andrew Bary at andrew.bary@barrons.com

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(END) Dow Jones Newswires

October 10, 2024 11:43 ET (15:43 GMT)

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