Florence's Impact on Insurers Looks Manageable
We expect limited losses within our coverage and will maintain our fair value estimates and moat ratings for all the P&C insurers we cover.
While Hurricane Florence has created substantial devastation, we think the impact on insurers looks manageable. By the time it made landfall, Florence had been reduced to a Category 1 storm. Given that homeowners policies tend to exclude flooding, which is handled under government programs, the diminished wind speeds (the category rating relates only to wind speed) could help to reduce insurers' losses. An additional factor is that the North Carolina homeowners market is dominated by mutuals, with mutuals holding the top four market share positions. Still, within our coverage, Allstate (ALL) has by far the most exposure to the North Carolina homeowners market, although we would note that the company's historical avoidance of coastal exposure and its use of reinsurance helped it to weather the flurry of hurricanes last year very well. While Florence is a large storm and its effects will spill out from North Carolina, we think the factors above will limit losses within our coverage, and will maintain our fair value estimates and moat ratings for all the P&C insurers we cover.
In commercial lines, we see Chubb (CB), AIG (AIG), and Travelers (TRV) as the most exposed. Travelers, in particular, also has material homeowners exposure, and the combination could magnify losses. While this doesn't affect our long-term view of Travelers, we would note that the stock currently trades at a modest discount to our fair value estimate, and we believe that, among narrow-moat insurers, Travelers is currently the most attractively valued. In our view, the company has been generating returns below its long-term potential because of a string of temporary issues. We expect mean reversion over time, but this could be an additional issue that creates a delay in this process.
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Brett Horn does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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