Harvey hits insurance stocks as loss estimates surge to $20 billion
That would make it one of
the costliest storms in history for U.S. insurers, but could ultimately
help insurers and reinsurers to raise rates, some analysts said, after a
period of low premiums.
“Our best guess at this
point is Harvey could result in $10 billion to $20 billion of industry
insured losses, making it one of the top 10 most costly hurricanes to
hit the United States,” JPMorgan analyst Sarah DeWitt said in a research
note on Monday.
Swathes of Houston were
underwater on Monday, the effect of Harvey sweeping ashore on Friday as
the most powerful hurricane to hit Texas in 50 years. It has since been
downgraded to a tropical storm, but more rain is expected to fall on the
fourth-largest U.S. city.
Damage caused by
flooding is not included in standard homeowners insurance policies and
is covered by the U.S. government. However, flood damage to businesses
is covered by commercial policies, said DeWitt, which could result in
“meaningful losses for the commercial reinsurers and insurers.”
JPMorgan’s
and other estimates are currently well below the $75 billion in insured
losses caused by Hurricane Katrina hitting New Orleans in 2005, but are
likely to grow.
Shares
of Travelers Companies Inc and Allstate Corp, two of the largest
homeowners insurers in Texas, fell 2.6 percent and 1.5 percent
respectively on the New York Stock Exchange. Shares of Progressive Corp,
a large auto insurer in Texas, fell 2.3 percent.
STABILIZE RATES
Harvey
struck only days before senior insurance executives hold their annual
meeting in Monte Carlo to haggle over reinsurance renewals as premiums
remain stubbornly low across the industry.
“We
think Harvey could help stabilize global reinsurance pricing, but do not
expect a major turn in pricing to follow,” Kai Pan, an insurance
analyst at Morgan Stanley, said in a research note on Monday.
Property
and casualty insurance stocks tend to underperform immediately after a
catastrophic storm, but often beat the overall market once loss
estimates become more accurate and insurers are able to stabilize or
raise premium rates.
By contrast, insurance
brokerage stocks, such as Marsh & McLennan Cos Inc, tend to rise
immediately after a storm because such companies are not exposed to
underwriting risk and a rise in premium rates boosts their commission
income.
Shares of Marsh & McLennan, which
bought one of the largest insurance brokerages in Texas in 2015, closed
up 0.5 percent on Monday.
EARLY ESTIMATES
Houston
is facing worsening flooding in the coming days as the storm dumps more
rain on the city, swelling rivers to record levels and forcing federal
engineers on Monday to release water from reservoirs in an effort to
control the rushing currents.
Swiss Re said it is too early to gauge the full impact.
“There
are so many areas that have been hit by devastating winds and now the
massive flooding, and insurance adjusters are having to wait for first
responders to simply check on the safety and welfare of citizens," said
Mark Hanna of the Insurance Council of Texas.
Claims are expected to accelerate once Texas residents get their bearings.
"We
have just over 2,000 claims across all lines of business," said Farmers
Insurance Group spokesman Trent Frager. "While that may sound low,
residents who are evacuated haven't (yet) been able to assess and report
damage for claims handling."