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Insurers in Focus as Concerns Over Hurricane Dorian Loom

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Hurricane Dorian brings back memories of last year’s devastation when a host of hurricanes wreaked havoc in parts of the United States. The hurricane season typically starts in June and lasts through November during a year, gathering strength in August and September. Colorado State University (CSU) estimates ‘near average Atlantic hurricane season in 2019’. There will be 14 named storms, including six hurricanes and two major hurricanes per CSU.

The third quarter of a year generally bears the brunt of unprecedented catastrophes, which cause mass devastation. The second half of last year was marred by the hurricane season that weighed on the profits of insurers. Hurricanes Lane, Florence and Michael, and other catastrophes like Typhoon Jebi and California wildfires took a toll on insurers’ results last year. Per Munich RE, catastrophe losses in 2018 amounted to $160 billion, of which half was insured.

National Hurricane Center had categorized Hurricane Dorian as a category 5 storm. However, it has lost intensity and is a category 3 hurricane now. After battering the Bahamas, Dorian is expected to hit Florida's east coast and then coastlines of South Carolina and Georgia.

Per media reports, analysts at UBS Group AG estimate Hurricane Dorian to cause about $25 billion in losses in Bahamas while the amount might touch $40 billion if it hits Florida. AccuWeather estimates the total damage and economic loss stemming from Hurricane Dorian to be in the range of $8-10 billion.

Further Keefe, Bruyette & Woods analysts stated “the storm could cause sizable losses for insurers if the current forecast remains. Given generally low Florida primary insurer retentions and increased YTD reinsurance purchases, a major Florida catastrophe event will significantly impact the reinsurers; domestic primary insurers remain exposed up to their reinsurance attachment points.” The analysts also stated that  “YTD loss creep and potentially significant Dorian losses mean that catastrophe reinsurance rate increases and elevated reinsurance demand will persist into 2020” per media reports.

Though catastrophes are a concern for insurers, due to the high degree of losses incurred, they implement price hikes to ensure uninterrupted claims payment. After witnessing 19 back-to-back quarters of soft pricing market, insurers increased prices from the fourth quarter of 2018. Per Willis Towers Watson plc’s Commercial Lines Insurance Pricing Survey in 2019, most of the commercial insurance lines should witness rate increase.

Property and casualty insurers are also taking reinsurance covers to safeguard their profits. As such shares of reinsurers like RenaissanceRe Holdings (RNR - Free Report) and Everest Re Group (RE - Free Report) witnessed a decline in the last trading session.

Insurers need to arrange sufficient 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, insurers could build reserves over the last several quarters.

Notably, share price of insurers having exposure to Florida like Berkshire Hathaway (BRK.B - Free Report) , The Progressive Corporation (PGR - Free Report) , United Insurance Holdings (UIHC - Free Report) , HCI Group (HCI - Free Report) gained in the last trading session while shares of Heritage Insurance Holdings (HRTG - Free Report) declined.

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