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Catastrophes Rock Q3 Underwriting: Insurance Stocks in Focus
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There seems no end to the woes and mass devastations as parts of the United States continue to be rampaged by a host of Hurricanes. While Harvey rocked Houston and Texas Gulf Coast, Irma ran amok in the regions across Caribbean to Florida. Both storms are considered costliest in a decade. No sooner the country had heaved a sigh of relief as Hurricane Jose was not so destructive in effect than another Hurricane Maria hit Puerto Rico and the Virgin Islands. Maria is already deemed to a Category 5 storm.
Economic losses from Irma are estimated about $58-$83 billion while the same from Harvey could be as high as $108 billion by Moody’s Analytics. Loss counts are yet to come for the damages caused by Maria. The only good news is that Irma’s impact is projected as lower than anticipated.
We can safely say that the third quarter of property and casualty insurance industry is characterized by Hurricanes, disrupting the results of insurers in the process. Continuous damages can even induce underwriting loss, resulting in major deterioration in combined ratio in the third quarter of 2017. Third-quarter earnings will therefore be badly affected.
Insurers have already started releasing loss estimates. Assurant Inc. (AIZ - Free Report) has estimated between $134 million and $140 million pre-tax of reportable catastrophe losses from Harvey and expects gross losses from Irma to exceed its retention of $125 million pre-tax. The insurer stated that this loss will impact the third-quarter performance of its Global Housing segment the most.
The Travelers Companies, Inc. (TRV - Free Report) estimates pre-tax catastrophe loss from Hurricane Harvey between $375 million and $750 million or $245 million and $490 million after-tax. In fact, in the wake of such a grave loss, the insurer halted its share repurchase program. HCI Group, Inc. (HCI - Free Report) projects loss between $100 million and $300 million from Hurricane Irma. HCI Group also anticipated the extent of loss to exceed its $16 million reinsurance retention level.
Insurers need to be prepared with enough funds to address huge claims arising due to calamities. The main challenge lies in settling claims smoothly without affecting their own financials. Due to a not-so-active catastrophe environment, the insurers could build reserves over the last several quarters. We expect such capital accumulation to help insurers meet the claims and yet at the same time, save them from buckling under the burden.
The industry is currently ranked at #206, representing the bottom 8% of the Zacks Industry Ranks. The industry has also underperformed the S&P 500 over the last month. While the former has gained 1%, the latter has clocked a return of nearly 3%.
Stocks in Focus
We concentrate on stocks that carry a Zacks Rank #4 (Sell) or #5 (Strong Sell) as estimates moved down over the last 30 days and carry an unfavorable VGM Score. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three factors. Shares of these companies have also lost badly in the past month.
Bermuda-based Aspen Insurance Holdings Ltd. engages in insurance and reinsurance businesses in the United States and internationally. The stock carries a Zacks Rank #5. The Zacks Consensus Estimate for 2017 moved down 20.7% in the last 30 days. The stock has a VGM Score of D.
Shares of Aspen Insurance have lost 12.7% in the last month, underperforming the industry.
New York-based Alleghany Corporation provides property and casualty reinsurance and insurance in the United States and internationally. The stock carries a Zacks Rank #5. The Zacks Consensus Estimate for 2017 moved south 28% in the last 30 days. The stock has a VGM Score of D.
Shares of Alleghany have slipped 1.8% in the past month, thus underperforming the industry.
New-York based The Travelers Companies provides property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States and select international markets. The stock carries a Zacks Rank #4. The Zacks Consensus Estimate for 2017 moved down 12.8% in the last 30 days. The stock has a VGM Score of D.
Shares of Travelers have declined 5.4% in the last month, thereby underperforming the industry.
Ohio-based State Auto Financial Corporation engages in writing personal, business and specialty insurance products. The stock carries a Zacks Rank #4. The Zacks Consensus Estimate for 2017 tanked 104% in the last 30 days. The stock has a VGM Score of C.
Shares of State Auto Financial have lost 0.04% in the last month, thereby underperforming the industry.
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Catastrophes Rock Q3 Underwriting: Insurance Stocks in Focus
There seems no end to the woes and mass devastations as parts of the United States continue to be rampaged by a host of Hurricanes. While Harvey rocked Houston and Texas Gulf Coast, Irma ran amok in the regions across Caribbean to Florida. Both storms are considered costliest in a decade. No sooner the country had heaved a sigh of relief as Hurricane Jose was not so destructive in effect than another Hurricane Maria hit Puerto Rico and the Virgin Islands. Maria is already deemed to a Category 5 storm.
Economic losses from Irma are estimated about $58-$83 billion while the same from Harvey could be as high as $108 billion by Moody’s Analytics. Loss counts are yet to come for the damages caused by Maria. The only good news is that Irma’s impact is projected as lower than anticipated.
We can safely say that the third quarter of property and casualty insurance industry is characterized by Hurricanes, disrupting the results of insurers in the process. Continuous damages can even induce underwriting loss, resulting in major deterioration in combined ratio in the third quarter of 2017. Third-quarter earnings will therefore be badly affected.
Insurers have already started releasing loss estimates. Assurant Inc. (AIZ - Free Report) has estimated between $134 million and $140 million pre-tax of reportable catastrophe losses from Harvey and expects gross losses from Irma to exceed its retention of $125 million pre-tax. The insurer stated that this loss will impact the third-quarter performance of its Global Housing segment the most.
The Travelers Companies, Inc. (TRV - Free Report) estimates pre-tax catastrophe loss from Hurricane Harvey between $375 million and $750 million or $245 million and $490 million after-tax. In fact, in the wake of such a grave loss, the insurer halted its share repurchase program. HCI Group, Inc. (HCI - Free Report) projects loss between $100 million and $300 million from Hurricane Irma. HCI Group also anticipated the extent of loss to exceed its $16 million reinsurance retention level.
Insurers need to be prepared with enough funds to address huge claims arising due to calamities. The main challenge lies in settling claims smoothly without affecting their own financials. Due to a not-so-active catastrophe environment, the insurers could build reserves over the last several quarters. We expect such capital accumulation to help insurers meet the claims and yet at the same time, save them from buckling under the burden.
The industry is currently ranked at #206, representing the bottom 8% of the Zacks Industry Ranks. The industry has also underperformed the S&P 500 over the last month. While the former has gained 1%, the latter has clocked a return of nearly 3%.
Stocks in Focus
We concentrate on stocks that carry a Zacks Rank #4 (Sell) or #5 (Strong Sell) as estimates moved down over the last 30 days and carry an unfavorable VGM Score. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three factors. Shares of these companies have also lost badly in the past month.
Bermuda-based Aspen Insurance Holdings Ltd. engages in insurance and reinsurance businesses in the United States and internationally. The stock carries a Zacks Rank #5. The Zacks Consensus Estimate for 2017 moved down 20.7% in the last 30 days. The stock has a VGM Score of D.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Aspen Insurance have lost 12.7% in the last month, underperforming the industry.
New York-based Alleghany Corporation provides property and casualty reinsurance and insurance in the United States and internationally. The stock carries a Zacks Rank #5. The Zacks Consensus Estimate for 2017 moved south 28% in the last 30 days. The stock has a VGM Score of D.
Shares of Alleghany have slipped 1.8% in the past month, thus underperforming the industry.
New-York based The Travelers Companies provides property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States and select international markets. The stock carries a Zacks Rank #4. The Zacks Consensus Estimate for 2017 moved down 12.8% in the last 30 days. The stock has a VGM Score of D.
Shares of Travelers have declined 5.4% in the last month, thereby underperforming the industry.
Ohio-based State Auto Financial Corporation engages in writing personal, business and specialty insurance products. The stock carries a Zacks Rank #4. The Zacks Consensus Estimate for 2017 tanked 104% in the last 30 days. The stock has a VGM Score of C.
Shares of State Auto Financial have lost 0.04% in the last month, thereby underperforming the industry.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market. Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>