Hurricane Florence Pounds Some Financial Markets
$KBWP, $All, $TRV, $IAK, $HD, $LOW, $GNRC
The path of Hurricane Florence’s potential destruction runs right through markets from stocks to mortgage-backed securities.
The Category 4 storm, which is forcing more than 1-M people to flee to safety and could wreak as much as $27-B in damages in the states of North Carolina and South Carolina has already struck insurance stocks and funds holding catastrophe bonds as investors try to front run the possible disaster.
“The bottom line: it seems to be pretty serious,” a senior analyst with Moody’s Investors Service, said of the storm. “Everybody is watching it, and so are we.”
Here are 3 of the markets that are most vulnerable to the impending storm.
Should Hurricane Florence make landfall between South Carolina and Virginia, insurance companies could be on the hook as the storm could cause $15 to $20-B in covered losses from wind and coastal storm surge.
Insurance companies in the S&P 500 Index have under-performed the benchmark since Thursday.
There are 2 insurance companies have a lot of business in Florence’s path: Allstate Corp (NYSE:ALL) and Travelers Companies Inc., (NYSE:TRV) which are both down by more than 2% since the storm increased in intensity and focused on the Carolinas.
The $66-B Invesco KBW Property & Casualty Insurance ETF, (KBWP), has the most exposure to the insurers, with Allstate the 2nd-largest holding and Travelers the 5th, making up a combined 15% of the fund. KBWP fell as much as 0.7% Tuesday after dropping 2% over the previous two sessions.
The iShares U.S. Insurance ETF (IAK) also has elevated exposure to the 2 insurers with both ranking in the Top 10 holdings.
Another sector that could take a beating are utilities that serve the 2 states. Duke Energy Corp. and SCANA Corp. fell more than 2% over the last 3 days.
Home-improvement retailers are seeing a storm-related boost. Home Depot Inc. (NYSE:HD) and Lowe’s Cos. (NYSE:LOW)both rose Tuesday, extending gains for the 4th day running.
Generac Holdings Inc., (GNRC) which makes generators, gained more than 7% over the past 2 days, pushing the stock to the highest since Y 2014.
Catastrophe bonds are perhaps the most direct bet on the potential disaster: Insurers issue them to transfer risk of losses related to events like hurricanes to investors.
The Swiss Re Cat Bond Index, a widely-cited gauge for catastrophe bond performance, hasn’t moved on the news as it updates only on Fridays. The index suffered a decline of 16% last year during hurricane season that took about 9 months to recoup. However, the benchmark hasn’t had a negative year in data going back 15 years.
But some mutual funds that invest in reinsurance products like catastrophe bonds are already feeling the impact of the storm.
The $5.8-B Stone Ridge Reinsurance Risk Premium Interval Fund fell 5.2% Monday, its biggest 1-day decliner since last September when Hurricane Irma approached Florida. The fund provides regular payments to investors but can lose money if storm damage costs are too high.
The collateral for more than $20-B worth of loans bundled into securities are located in North Carolina, South Carolina and Virginia, according to Morgan Stanley. Some $8.3-B worth of property sits within 25 miles of the coastline. The last time a hurricane of this magnitude struck South Carolina, it caused $4.2-B of insured losses, the bank said.
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