Hurricane Laura-Led Uncertainty Brings Insurers in Focus

Though Hurricane Laura was reduced to a tropical storm as it entered Arkansas after making landfall near Cameron, LA on the Gulf Coast, it is expected to have caused significant damage. Colorado State University (CSU) predicts an ‘extremely active Atlantic hurricane season in 2020’. There will be 24 named storms, including 12 hurricanes and six major hurricanes per CSU.

The third quarter of a year generally bears the brunt of catastrophes as the hurricane season typically starts in June and lasts through November during a year, gathering strength in August and September. Per a report on Aug 5, 2020, CSU estimates ‘hurricane activity will be about 190% of the average season’. This compares with last year’s near average Atlantic hurricane season and hurricane activity being 120% of the average season. There have already been nine named hurricanes so far in 2020.

Per a report by AccuWeather, Hurricane Laura might cause about $25-$30 billion in economic losses while analyst from Wells Fargo Securities projects insured loss between $8 and $15 billion. A.M. Best anticipates “losses from Hurricane Laura to stress balance sheets that have already been weakened by the COVID-19 pandemic” while Moody’s anticipates “losses to hit reinsurers as well as insurers as the U.S. Gulf Coast is a peak catastrophe zone for reinsurers, and those with exposure to Texas and Louisiana could incur meaningful losses” per a report in Insurance Journal.    

Though shares of property and casualty insurers like The Allstate Corporation ALL, The Progressive Corporation PGR, The Travelers Companies TRV, The Hartford Financial Services Group HIG and Chubb CB have gained in the last trading session, these insurers have exposure to areas where Hurricane Laura made landfall and therefore we may see an adverse impact on the stocks’ performance in the coming days. Losses from Hurricane Laura will likely dent underwriting profitability of these insurers.

Though catastrophes are a concern for insurers due to the high degree of losses incurred, they implement price hikes to ensure uninterrupted claims payment. In the first quarter of 2020, commercial insurance pricing improved 14%, property rates increased 21%, casualty pricing rose 5%, U.S. financial and professional lines pricing increased 23%, cyber insurance pricing rose 6%, and auto pricing was up 10%, per Marsh LLC in a report published in Business insurance.  Further Marsh noted that the COVID-19 outbreak ‘had an insignificant impact on pricing in the first quarter’ but will have a greater impact on pricing in the remainder of 2020.

Also, reinsurance covers will likely help these insurers weather losses. Reinsurers also get room for firming up prices.  Shares of reinsurers like RenaissanceRe Holdings RNR and Everest Re Holdings RE gained in the last trading session.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q2 2020, while the S&P 500 gained an impressive +44.0%, five of our strategies returned +50.9%, +93.8%, +122.2%, +153.0%, and even +156.8%.

This outperformance has not just been a recent phenomenon. From 2000 – Q2 2020, while the S&P averaged +5.5% per year, our top strategies averaged up to +51.7% per year.

See their latest picks free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Travelers Companies, Inc. (TRV): Free Stock Analysis Report
RenaissanceRe Holdings Ltd. (RNR): Free Stock Analysis Report
The Allstate Corporation (ALL): Free Stock Analysis Report
The Hartford Financial Services Group, Inc. (HIG): Free Stock Analysis Report
Everest Re Group, Ltd. (RE): Free Stock Analysis Report
The Progressive Corporation (PGR): Free Stock Analysis Report
Chubb Limited (CB): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.