The hurricane season might have devastated the U.S. Virgin Islands and the Florida Panhandle, but insurance company stocks have escaped with only minor damage.
While some insurance companies might suffer short-term casualty losses, they will be cushioned by strong 1995 investment returns and improving insurance industry fundamentals.
In addition, storm damage might allow them to raise their property and casualty insurance rates next year, increasing long-term revenue.
Allstate Insurance Group is the publicly owned insurer with the greatest exposure, but the losses are likely to amount to 25 cents to 40 cents per share, according to Tom Angers, vice president at Glenmede Trust, Philadelphia.
Allstate's stock closed at $35 a share Oct. 2, the day before Opal made landfall, dropped to $33.75 on the day Opal hit and bounced back to $34.75 the day after, Mr. Angers said. On Oct. 10, the stock traded at $34.25.
While the parade of hurricanes devastated several tourist spots, tourism stocks - mainly hotel and cruise companies - are insulated by diversification.
And because damage on the U.S. mainland was localized, there should be no widespread effect on construction and material stocks.
Last month, Hurricanes Luis and Marilyn pounded the western Caribbean within a week of each other, followed by Opal, which cut a swath from northwestern Florida inland, causing damage in Alabama and as far north as the Carolinas.
The current estimate for insured losses from Opal in Florida and Alabama reached $1.8 billion and the figure is expected to grow as more damage is reported, said Mr. Angers. Marilyn caused $875 million in insured losses in the U.S. Virgin Islands and Puerto Rico.
Industry observers point out the effect on insurance company stocks will be limited, thanks to the location of the damage. Many insurance companies had begun phasing out underwriting in Florida after Hurricane Andrew devastated parts of South Florida in 1992. Additionally, most insurers have benefited from healthy stock and bond returns on their own investments.
Insurance companies total damages and pay claims fairly quickly, so any effect likely will be seen in this quarter.
Long-term effects are more likely to be positive, as the companies increase their rates next year. Rates normally are reset Jan. 1, and companies are rethinking their 1996 rates now, said Larry Ach, senior vice president and portfolio manager at Lynch & Mayer, New York.
Insurers also have been rewarded by the strength of the stock and bond markets, so they will take a much milder hit from paying claims.
"With such a strong market, investment gains have been so good for insurance companies' investments that they will be able to sustain the losses," said Catherine Rooney, who runs about $1.3 billion in large-capitalization equities for Pitcairn Trust Co., Philadelphia.
"Hurricane season is kind of funny. Everybody who owns (insurance stocks) gets sweaty palms," said Judy Jones, senior vice president of Society Asset Management Inc., Cleveland.
But she noted insurance stocks sell at a discount to the price/earnings ratio, relative to banks and other financial stocks.
Society, a value investor, was already looking at the insurance sector, so a hurricane-related drop would be seen as a buying opportunity, she said. It has owned Allstate for several years, and has seen the stock improve since it was spun off by Sears, Roebuck & Co.
There may be some trading based on investor perception, said Pitcairn's Ms. Rooney, and "it could be a buying opportunity if they get hit enough."
Among other sectors of the stock market:
There may be a small, short-term impact on the stocks of oil service companies because their rigs were shut down during the hurricanes, said Ms. Rooney.
Some retail stocks may be hurt much as they are after spells of bad weather, said Ms. Rooney.
Wood product companies such as Georgia Pacific Co. could benefit from a boomlet in construction and building repair, said Lynch & Mayer's Mr. Ach.
Most publicly traded hotel companies don't derive the majority of their revenues from the Caribbean or Florida, so they'll suffer minimal hurricane-related damage to their stock prices. Also, most manage, not own, the hotels bearing their names, noted Scott Berman, director of the hospitality consulting practice in the Miami office of Coopers and Lybrand L.L.P.
And, cruise companies have rerouted their Caribbean sailings, said Murray Markin, an analyst with Strategic Decisions Inc., a Boca Raton, Fla., consulting firm.
Every cruise line has lost some operations in the Caribbean this season, which has affected their third-quarter projections, said Mr. Markin. The only two prominent cruise lines in the region that are publicly traded companies are Carnival Cruise Lines, a unit of Carnival Corp., and Royal Caribbean Cruises Ltd., said Mr. Markin.