Property & Casualty insurers under pressure in Harvey aftermath

Hurricane Harvey made landfall late Friday night as a Category 4 storm, with sustained winds of 130mph. The storm was the first Category 4 hurricane to hit the continental U.S. in over a decade.

Winds slowed throughout the day Saturday, with Harvey becoming a tropical storm by afternoon.

Commenting on what Harvey will mean for Property & Casualty insurers, #JPMorgan analyst Sarah #DeWitt told investors that this could result in up to $20B of insured losses, while her peer at Deutsche Bank argued that Harvey is likely less severe for insurers than feared.

HARVEY SEEN AS IN TOP 10 MOST COSTLY HURRICANES

In a research note to investors this morning, JPMorgan’s DeWitt noted that Harvey continues to linger and is far from over, bringing catastrophic amounts of flooding to the coast of Texas, including the Houston/Galveston area.

While it is early days and Harvey is expected to bring even more rain and flooding for another week, the analyst said her best guess at this point is the storm could result in $10B-$20B of industry insured losses, making it one of the top 10 most costly hurricanes to hit the U.S.

Further, DeWitt argued that while Harvey appears to be more of a flood event, noting that flooding is not covered under homeowner’s insurance though it is covered under commercial insurance and could result in meaningful losses for the commercial reinsurers and insurers.

The analyst listed Validus (VR), RenaissanceRe (RNR), Everest Re (RE), XL Group (XL), Arch Capital (ACGL), Travelers (TRV), Chubb (CB), Allstate (ALL) and Progressive (PGR) as the property casualty insurers with the most exposure to Texas hurricanes.

Meanwhile, Morgan Stanley analyst Kai #Pan told investors in a research note of his own that uncertainty surrounding losses from Harvey could pressure Property & Casualty carriers in the near-term.

Flood losses could dwarf wind losses, impacting commercial players more than personal, he noted, adding that Hartford Financial Services (HIG) and Travelers are top Texas commercial insurers among his coverage.

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LESS SEVERE THAN FEARED

Striking between Corpus Christie and Galveston, insured loss costs are probably lower than they would be had the storm landed further south and most certainly had it tracked further north, Deutsche Bank analyst Joshua #Shanker argued.

Windspeeds were generally higher than expected, and while the storm surge reached two to three feet in some areas, the analyst noted that it was not as high as was feared.

Shanker expects losses to skew toward the residential market as opposed to the commercial markets, with homeowners’ flood losses generally not covered by private insurance.

The analyst pointed out that he believes commercial carriers like AIG (AIG) and Chubb will generally avoid significant exposure to the event, and personal insurers like Allstate and Progressive will generally be exposed to flooded automobiles.

In all cases, Harvey could best be described as an earnings event and not a balance sheet event, he contended.

PRICE ACTION

In Monday morning’s trading, shares of AIG have slipped about 1%, while Everest Re and Travelers have dropped almost 3%. Validus, RenaissanceRe, Arch Capital, Chubb, Allstate, Progressive and Hartford Financial Services have slid about 2%.

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