The past month has seen three major hurricanes rip through the Atlantic Ocean, through the Caribbean and hit the United States and or its properties in the Caribbean. This has led to a tremendous amount of speculation on how the storms would impact different property insurers and that has created a volatile environment for the sector, but predicting what will happen in the aftermath of a hurricane is hard to predict as the path of the hurricane itself. Just look at the spaghetti model of Hurricane Jose from September 9. Here it is 11 days later and it is having an impact on the weather in the Northeast at this time.
When Hurricane Harvey was approaching the Texas Gulf Coast, companies like Allstate (NYSE: ALL), Chubb (NYSE: CB), Progressive (NYSE: PGR) and Travelers (NYSE: TRV) all started slipping. According to PropertyCasualty360.com, these four publicly traded companies had the greatest exposure in Texas.
All four stocks declined from August 22 through September 7, but since then the stocks have been moving higher as more is learned about the damage that was done in Texas. We see that Chubb and Allstate both declined over seven percent, Travelers declined over nine percent and Progressive declined over 10.5 percent. It stands to reason that Progressive would decline the most as it has the highest concentration of premiums in Texas.
The selling was warranted with the storm being a category 4 hurricane as it approached the Texas coast and given the exposure these companies have in the state. The following table was put together with data from PropertyCasualty360.com and it shows how much exposure each company has in Texas and how much concentration there is in the state.
Looking at a performance chart for some of the insurance companies with the greatest exposure in Florida and using the same time frame we saw on the chart for major Texas insurers, we see a similar story. HCI Group (NYSE: HCI), Heritage Property & Casualty (NYSE: HRTG) and Universal Insurance Holding (NYSE: UVE) all have major exposure in South Florida, specifically Palm Beach, Broward and Miami-Dade counties. We see on this chart that the selling doesn’t hit until September 1, and the selling was much more aggressive with these three companies than what we saw with the Texas insurance companies. Universal dropped almost 28 percent from August 25 through September 7 while HCI Group fell 26 percent and Heritage fell approximately 18 percent. Once the models became a little clearer and it looked like the storm was headed more toward the West coast of Florida, these stocks rallied sharply. Eventually the storm went ashore on the other side of the state and in a less populated area. The property damage wasn’t nearly as bad as it could have been. The biggest loss in many instances was the loss of power.
Given the volatility from the insurance sector over the last month, there was definitely money to be made, first on the downswing and then on the rally after the storm. In order to have profited, you would have had to be nimble and fast and you would have likely had to watch the weather more than you did the financial news. This isn’t the best way to make money investing in my opinion. Do you really want to invest your money based on our ability to predict the weather?