Hurricane Dorian's Track Shift Lowers Loss Estimates For Insurers

Insurance and reinsurance companies were relieved somewhat after a shift in the expected path of Hurricane Dorian, which looked Tuesday morning like it would miss South Florida and may brush much of the Southeastern coast without making landfall.

Several publicly traded insurance companies with heavy Florida exposure were down more than 5% last week, Morgan Stanley analyst Michael Phillips said in a Tuesday note. But with the shift in the forecast track, that may change.

Among the insurance stocks hit hard last week were Heritage Insurance Holdings Inc HRTG, down 8.3% last week, and Federated National Holding Co. FNHC, HCI Group Inc HCI and United Insurance Holdings Corp. UIHC — all down more than 5%.

“We'd expect a rebound to these names if Dorian tracks as currently predicted,” Phillips said. 

But the east coast isn’t fully out of danger, particularly areas farther north, including coastal Georgia, the Carolinas and even Virginia. Total damage, however, was looking lower than the $15 billion to $40 billion range projected last week.

#Dorian remains a Category 3 hurricane with 120 mph winds. It is moving at 1 mph, still hovering over The Bahamas. pic.twitter.com/IEshjHNzNr

— The Weather Channel (@weatherchannel) September 3, 2019

Some national insurers that have more exposure in Georgia and the Carolinas, such as Allstate Corp ALL and Travelers Companies Inc TRV, could be affected if the storm takes aim more at those states, the Morgan Stanley analyst said. 

Lower Loss Figures

Dorian’s path has been hard to forecast, and without a clear idea of where — and if — it might hit, it’s hard to predict insured losses.

Credit Suisse analysts last week modeled total insured losses at up to $30 billion, but that was before the storm track shifted away from a direct hit on South Florida.

Morgan Stanley’s Phillips compared Dorian’s new possible path to 2016’s Hurricane Matthew, which skirted the Florida coast before hitting South Carolina as a Category 1, causing total insured losses of $5 billion, though Dorian is stronger, measured as a Category 3 storm Tuesday morning.

Insurers faced nearly $7 billion in losses from claims for damage from last year's Hurricane Michael, which hit Florida's Panhandle as a Category 5 storm. 

Reinsurance

Reinsurance companies, which provide insurance for insurers, could see claims if hurricane losses are higher than insurance covers.

The amount of retention, or how much the insured are responsible for, tends to be relatively low in the region facing storm damage, which could increase reinsurer responsibility.

Whatever this storm brings, higher prices in the reinsurance industry are likely to continue in a new era of higher losses, MKM Partners analyst Harry Fong said in a Tuesday note. 

“We could soon experience three years of major hurricane losses in a row in Florida, with Irma in 2017 at Category 4 and Michael last year at Category 5,” Fong said.

“Back-to-back-to-back years of a major hurricane could keep the pressure on for higher reinsurance rates, especially with some participants having given notice that they are pulling out of this business.

"Any higher reinsurance rates will trickle down to insurers," the analyst said. 

While Dorian will likely miss heavily populated South Florida, other big metros with large amounts of insured property, including Jacksonville; Savannah, Georgia; Charleston, South Carolina; and the Norfolk, Virginia area remain potentially in danger and could boost loss numbers if hit.

Related Links:

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