14 Apr, 2024
1 min read

Insurance plays for a busy hurricane season ahead (NYSE:ALL)

Hurricane Ida 2021 Topographic Map 3D Render Color

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Hurricane season has started and early forecasts are calling for an active 2022 North Atlantic storm season with a 76% probability of a major hurricane making continental US landfall, above the 52% multi-year average, said Jefferies analyst Yaron Kinar in a note to clients.

The University of Colorado forecasts that Atlantic hurricanes will be “well above average” this year, wit 20 named storms and 10 hurricanes. That’s up from the 1991-2020 average of 14.4 named storms and 7.2 hurricanes. “We anticipate that either cool neutral ENSO (El Niño-Southern Oscillation) or wee La Niña conditions will predominate over the next several months,” according to CSU Tropical Weather & Climate Research.

Short-term trades: Overall, Kinar suggested that buying shares of hurricane-exposed personal lines insurers and insurance brokers for a short-term trade at or near US landfall of a major storm offer the most upside. He gave two reasons for the strategy: 1) widespread expectations of material losses during storm season often exceed actual losses even in active storm years; and 2) bullish pricing expectation often follow large catastrophic events.

“We expect substantial pricing power to emerge if 2022 proves to be the sixth consecutive year of material hurricane-related industry losses, all the more so with rebuilding costs significantly higher,” Kinar wrote.

Personal pricing power: Cathy Siefert, analyst at CFRA, expects pricing power to pick up in P&C personal lines approaching double digits, especially in personal auto, while commercial lines’ pricing decelerates. For example, commercial line rates increased an average of 6.6% in Q1 2022, down from 10% in Q1 2021, she said.

Looking to individual stocks, Jefferies’ Kinar notes that Allstate (NYSE:ALL) is more sensitive to catastrophic losses due to a larger homeowners’ book. Meanwhile, Progressive (NYSE:PGR), more heavily weighted to the less

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