With hurricane Michael expected to make landfall in Florida as a Category 4 storm early Wednesday afternoon, Keefe, Bruyette & Woods (KBW) analysts are most concerned about reinsurers owing to the Florida property market’s heavy use of reinsurance protection.
The storm has strengthened today over the warm Gulf of Mexico waters, with lighter than expected wind shear. This means that Michael is now expected to make its landfall in the Florida Panhandle area of the Gulf Coast as a major Category 4 storm.
Analysts expect some pressure on P&C stocks, and note surprise by the stock’s resilience so far, adding that they’re most concerned about the reinsurance companies.
As highlighted by analysts yesterday, Florida’s fragmented personal property market makes good use of reinsurance protection which attaches relatively low, and with the speed of the storm suggesting less accumulated inland rainfall, the impact on property could far outweigh auto losses, which implies a greater reinsurance exposure.
Additionally, KBW note that the re/insurance industry’s year-to-date merger and acquisition (M&A) activity has resulted in both actual and potential targets purchasing more reinsurance.
“We don’t yet have a credible industry incurred loss estimate, but we expect total insured losses to be manageable, with little impact on property reinsurance pricing trends,” say analysts.
According to the latest data, hurricane Michael has maximum sustained winds of 140 mph with higher gusts, with strengthening expected as it approaches land. Currently, hurricane-force winds extend outwards as much as 45 miles and tropical-storm-force winds up to 185 miles from the centre of the storm.
