Hurricane Irene and Insurers: Less Damage, Excuse to Hike Prices
The Weakened Storm Allows Insurers to Raise Prices
Hurricane Irene was the “Perfect Storm” for insurers, but in a very different sense of the term. The weakened storm that spared New York City from major hurricane damage gave the wealthy and rarely hit Northeast enough of a scare because of ominous weather forecasts leading up the storm that property insurers will be able to raise pricing even more next year, according to a Morgan Stanley analyst.
“Following $70b+ in global catastrophe losses (Australian floods, New Zealand quake, Japan quake/tsunami, US tornados in Joplin and Tuscaloosa) we never felt ‘one more storm’ was required to drive higher pricing in 2012,” wrote Morgan Stanley’s Gregory Locraft in a note to clients late Sunday. “Nonetheless, we believe Irene serves as that ‘one more storm’ for the doubters and the associated media focus became in effect a strong advertising campaign for the P&C industry. We expect higher prices and higher demand into 2012 across all property-related lines.”
Locraft estimates insurers will face overall losses from Irene of less than $10 billion, based on early reports from risk-modeling firms used by the insurance industry. Total economic losses will likely be twice that, according to the analyst.
The worry over Irene kicked into high gear on Wednesday when the storm was still a Category 3 and various computer models showed a destructive patch up the Eastern seaboard, ultimately hitting New York city and Long Island. New York Mayor Michael Bloomberg ordered the first ever mandatory evacuation of low-lying areas and shut down the subway system on Saturday before the storm.
Morgan Stanley’s favorite insurance stocks are RenaissanceRe, Travelers, ACE Limited, Axis Capital Holdings, and Chubb.
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