Severe Hurricane Season Batters US Property Insurance Stocks

2024-06-08 194 Comments

U.S. property and casualty stocks took a heavy hit on Monday, following the intensification of Hurricane Milton into a Category 4 storm, which is approaching the west coast of Florida, poised to become another costly disaster for the property insurance industry this year. Insurance companies are expected to face billions of dollars in disaster-related claims due to the destructive hurricane season.

Catastrophe losses refer to the significant financial losses incurred by insurance companies as a result of large-scale natural or man-made disasters. These events have escalated in recent years, severely eroding insurance company profits due to substantial expenditures associated with extensive property damage, business interruption, and liability claims.

The United States has faced several major hurricanes in 2024, including Hurricane Debbie that struck Florida in August, Hurricane Francine that made landfall in Louisiana in September, and Hurricane Helen that recently hit Florida in the same month.

The S&P Insurance Select Industry Index closed down 3.1% on Monday.

Losses Intensify

Severe and frequent natural disasters have exacerbated the industry's trend of withdrawing from high-risk areas, particularly Florida. Reinsurance costs in the state have also risen sharply, increasing the operating costs for insurance companies.

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Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors, said, "Investors are not only considering the short-term impact on company earnings but also the long-term effects of climate change and rising seasonal losses on the business."

Schulman said, "The credit ratings of companies have not been significantly affected in the short term. However, if extreme weather forces people to leave, the long-term revenue models of these companies could be impacted."

On Monday, Florida was preparing for its largest evacuation since 2017, primarily due to Hurricane "Milton" following the devastating path of Hurricane "Helen," strengthening as it moves westward along the Gulf Coast and potentially further affecting areas already ravaged by "Helen."

Heritage Insurance (HRTG.US), which has a significant business scale in the state, saw its stock price drop by 23.38% on Monday. Universal Insurance (UVE.US) and HCI Group (HCI.US) also fell by 19.52% and 17.26%, respectively.Industry leader Travelers Property Casualty Group (TRV.US) fell by 4%, while Allstate (ALL.US) and Assurant (AIZ.US) saw declines of 5% and 5.5%, respectively.

In the meantime, as hurricanes may lead to power outages, investors are betting on increased demand for Generac's (GNRC.US) generator products, which can power homes during such interruptions. The stock price soared by over 8% on Monday.

Insurance broker Aon (AON.US) stated in a report on Sunday evening that the risk of life-threatening storm surges and destructive winds is growing for parts of the west coast of the Florida Peninsula, starting from Tuesday night or early Wednesday.

The US hurricane season is expected to end on November 30th. Forecasts indicate that this year's hurricane activity is above normal levels due to unusually warm sea surface temperatures in the tropical Atlantic, coupled with the La NiƱa weather pattern.

In a report from July, Gallagher Re said, "The insurance industry must prepare for potential challenges in the second half of the year. These conditions, along with the impacts of climate change, contributed to more unpredictable and extreme events in 2024."

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