Piper Sandler says Hurricane Milton could change the insurance market. Although Milton weakened slightly from the largest Category 5 storm to a Category 4 on Tuesday, Florida officials continued to warn that the storm posed a serious threat to communities. The hurricane is expected to reach western Florida on Wednesday afternoon or early Thursday, but weather conditions could worsen starting early Wednesday, officials said. “This storm has the potential to be one of the largest catastrophic events,” analyst Paul Newsom wrote in a research note on Monday. “For a large event like Milton, few insurance companies will not have losses. , because most insurance companies have some reinsurance or Lloyd’s business risk.” Newsom said Florida was better prepared for the storm than it was during Hurricane Ian, which was the state’s worst-case scenario. The costliest hurricane ever. However, Newsom said more people are moving to the state’s coastal areas, meaning insured losses in Milton could be higher. Piper Sandler said Milton has similarities to Ian, who caused $56 billion in insured losses. “Historically, insurance stocks have fallen when hurricanes are approaching landfall and causing damage,” Newsom said. “Insurance stocks tend to rebound when the scale of insured losses becomes more known or announced by insurance companies.” Meanwhile, demand for insurance tends to rise after hurricanes and other disasters, as people typically place more emphasis on insurance after an event, analysts added. “Typically, stocks with the greatest exposure react the strongest,” Newsom said. “We expect companies with market share in cat insurance segments such as home insurance and commercial multi-risk in Florida to experience the largest declines,” Newsom said. Out of the insurance company’s expected insured losses from Hurricane Ian. Allstate, AIG, Chubb, Heritage Insurance, Progressive and Universal Insurance Holdings all hold significant exposure to weather-related disaster risks, according to Newsom. Allstate and Travelers also ranked first in market share for personal and commercial lines in hurricane-affected states. Allstate’s shares are up 31% so far this year. The London Stock Exchange (LSEG) said most analysts covering the stock are bullish on the stock, with a consensus price target of 10.3% higher than Monday’s closing price. Chubb shares are also up 23.5% in 2024, outperforming the market. However, the average price target implies that the shares will rise only 4.4% from current levels. Progressive’s shares have risen more than 56% this year. While about half of analysts currently have a buy or strong buy rating on the stock, analysts predict the stock will rise only 5.4% going forward. To be sure, insurance stocks’ post-hurricane reactions typically only last a few days before returning to normal levels, Newsom said. “Insurance stocks typically stage a rally when the scale of the insured event (or lack thereof) becomes clear. This typically happens when a storm hits, if losses are small, or when insurance companies start paying out claims, usually , insurance companies will have reasonable damage estimates about a week after the storm hits,” Newsom said. —CNBC’s Michael Bloom contributed to this report.
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