U.S. Insurance Stocks Plunge Due to Hurricane Milton

By Manya Saini
(Reuters) – U.S. property and casualty insurance stocks dropped on Monday after Hurricane Milton became a category 4 storm heading towards Florida’s western coast, marking another expensive disaster for the industry this year.

Insurers are projected to face claims amounting to billions due to a devastating hurricane season. Catastrophe losses refer to significant financial hits that insurance companies incur due to large-scale natural or man-made disasters.

These events have become more frequent in recent years, negatively impacting profits due to substantial payouts associated with widespread property damage, business interruptions, and liability claims.

The U.S. experienced multiple major hurricanes in 2024, including Hurricane Debby in August, Hurricane Francine in September, and Hurricane Helene that also affected Florida.

The S&P Insurance Select Industry index fell by 3.1% on Monday.

Mounting Losses

Severe and frequent natural disasters have intensified the industry’s exit from high-risk areas, particularly Florida. Reinsurance costs have dramatically increased in the state, raising operational expenses for insurers.

Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors, remarked, “Investors are considering both short-term earnings hits and the long-term effects of climate change and seasonal damages on business.”

“While credit ratings remain largely unaffected in the short term, extreme weather could influence long-term revenue models,” Schulman added.

As Hurricane Milton intensified, Florida prepared for its largest evacuation since 2017, following the devastating impacts of Hurricane Helene. Milton could potentially complicate recovery efforts in already affected areas.

Heritage Insurance saw a decline of 25%, while Universal Insurance and HCI Group dropped by 18% and 17%, respectively. Sector leader Travelers Companies fell 4%, with Allstate and Assurant down by 5% and 4.4% respectively.

In contrast, Generac, a company that manufactures generators for home power during outages, rose by over 8% as investors anticipated increased demand due to hurricane-related disruptions.

Insurance broker Aon reported a growing risk of life-threatening storm surges and damaging winds for parts along Florida’s west coast beginning Tuesday night or early Wednesday.

The U.S. hurricane season is set to conclude on Nov. 30. Forecasts indicate above-normal activity this year, attributed to unusually warm sea surface temperatures in the tropical Atlantic and La Nina weather patterns.

Broker Gallagher Re warned in a July report that the insurance industry should prepare for a challenging second half of the year. “Conditions, influenced by climate change, have contributed to more unpredictable and extreme weather events in 2024.”