Impact of Harvey and Irma on the market

UK insurers may have escaped a big financial hit from recent US hurricane activity
Thursday 14 Sep 2017 Author: David Stevenson

Hurricane season is upon us and it has been a rollercoaster for the share prices of listed Lloyd’s of London insurers.

After Hurricane Harvey hit at the end of August, the costs for the likes of Beazley (BEZ), Lancashire (LRE) and Hiscox (HSX) are estimated at around £100m each.

Beazley and Lancashire suffered the most, with their shares dropping 12% and 11% respectively.

Since making landfall, the latest scourge of Hurricane Irma has been downgraded to a tropical storm, implying less damage. The revised cost of Irma has been slashed to as low as $20bn for the insurance industry, a long way off the $150bn touted for some time.

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This seems reflected in the market reaction to the insurance firms once Irma had begun to pass through Florida.

For instance, Lancashire gained 10%, Beazley   was up 4.3% and Hiscox ticked up 3.3% on Monday (11 Sep).

The idea that these events could ‘harden’ the insurance market and hike premiums in the future is soundly rejected by Panmure Gordon analyst Barrie Cornes. He tells Shares ‘there’s so much capital in the world insurance system it would take about three or four Irmas to take enough money out of the system to allow rates to go up’.

We note that UK-listed Catco Reinsurance Opportunities Fund (CAT) has seen its share price fall 16% to $1.12 since 23 August and its shares didn’t enjoy the reprieve rally seen among the Lloyd’s insurers. It has a portfolio of investments linked to catastrophe reinsurance contracts.

Clearing up the mess

The hurricanes may conversely help those in the construction business. Equipment rental specialist Ashtead (AHT) could do well from the hurricane season. It makes the majority of its money in the US through its Sunbelt division and is particularly strong in Florida and Texas.

When the rebuilding starts, firms might hire substantial machinery from Sunbelt. Ashtead’s chief executive Geoff Drabble on Tuesday said the incidents ‘will result in an increase in demand for our fleet’.

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