The latest projections show Hurricane Irma on track to make landfall in or near Miami on Sunday morning. Irma’s impressive strength and projected path have investors looking back to Hurricane Andrew in 1992 for any indication of how the storm could impact the stock market, particularly when it comes to insurance stocks.
Florida governor Rick Scott says Irma is “bigger, faster and stronger” than Hurricane Andrew, which caused $47.8 billion in damage and left more than 100 people dead.
The good news for most diversified investors is that Hurricane Andrew had no discernable impact on the broad market. In fact, in the first week following Andrew’s landfall in August 1992, the Standard & Poors 500 index gained 0.8 percent.
However, Andrew had a massive impact on the insurance industry due to the property damage it caused. Eleven insurance companies went bankrupt in the aftermath of Andrew, according to USA Today.
On Tuesday, Sandler O’Neill insurance analyst Paul Newsome told CNBC that insurance companies most at risk aren’t necessarily household names like Allstate Corp. (NYSE: ALL) and Progressive Corp. (PGR). Instead, smaller companies that specialize in property insurance in Florida, such as Heritage Insurance Holdings (HRTG), Universal Insurance Holdings, Inc. (UVE) and HCI Group (HCI), have a much more concentrated exposure to the storm.
HCI is based in Tampa and all of its current policies have been issued in Florida. Heritage is headquartered in Clearwater, Florida, and has more than 236,000 policies within the state, according to the Florida Office of Insurance Regulation. United Insurance Holdings Corp (UIHC), headquartered in St. Petersburg, Florida, holds 187,000 Florida policies.
Universal Insurance is the largest property and casualty insurer in Florida, with more than 584,000 statewide policies.
“A lot of these companies are essentially specialists in Florida, and so a majority of their premium can often come from just Florida,” Newsome says. “It’s quite easy for them to wipe out all their earnings for the year.”
Insurance companies rely…
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