Yahoo Finance Insurance companies are ready for Hurricane Michael's multi-billion dollar losses
The insurance industry is well positioned to handle the aftermath of Hurricane Michael, which is battering the Florida Panhandle as a Category 4 storm.
That’s the assessment from Elyse Greenspan, an analyst with Wells Fargo Securities, who covers the insurance space.
“The industry is over-capitalized by over $150 billion,” she said in an interview with Yahoo Finance, referring to the capital in reserves that insurance companies set aside to handle losses from hurricane damage.
“Losses would be manageable,” said Jacob Kilstein, an analyst with Argus Research, adding that damage from the storm could range from $9 billion to $15 billion.
Not a threat to major insurance stocks
In addition, Greenspan said there is less insured value in the path of Hurricane Michael than the East Coast of Florida, which includes major cities like Miami.
“With Hurricane Irma in 2017, there was worry about a Category 5 hurricane hitting Miami. If that happened, the industry would have been faced with $150 billion worth of losses,” she said.
Greenspan points to a few other factors as to why the storm isn’t much of a threat to the stock prices of major national insurers such as Progressive (PGR) and Allstate (ALL).
First, the national players have cut exposure to the Florida market over the past decade, leaving much of the underwriting to smaller providers such as State Farm and Federated National (FNHC).
Federated National shares slumped 4% in midday trading Wednesday.
“The market is dominated by smaller companies specific to Florida,” Greenspan noted.
While Progressive has roughly 16% of the Florida auto insurance market, less than Berkshire Hathaway’s (BRK-A) 24%, Greenspan isn’t as worried about auto damage from a storm given the relative ease at which consumers can move their cars out of harm’s way.
Hurricane Harvey, which devastated parts of Texas in August and September 2017, caused significant auto damage given the storm’s sudden ramp up in strength prior to making landfall, according to Greenspan.
Insurance for insurers
And just like consumers take out insurance policies to help cover damages from storms, the insurance companies themselves take out insurance to help with payments to consumers, called reinsurance.
Greenspan has a neutral rating on reinsurance stocks like Everest Re Group (RE). Everest Re Group shares fell 4% in midday trading Wednesday.
“Even moving away from Hurricane Michael, we’ve been the most cautious on the reinsurers just because of overcapacity in the market,” Greenspan said, referring to the quantity of players in the space. “Reinsurance rates will start to decline again in early 2019 after seeing modest rate increases this year.”
Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.
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