Insurers see share bounce after Irene

HURRICANE Irene sparked a relief rally in UK insurance stocks yesterday after low damage estimates from the storm left insurers less likely to suffer more claims to add to their heavy losses already this year.

Lloyd’s insurers saw their shares fall last week as US authorities evacuated New York and warned of huge damage as hurricane Irene approached the east coast.

Irene killed more than 40 people after she swept up the US east coast from North Carolina on Saturday and Sunday, leaving a million homes without power and swathes of Vermont and New York states suffering serious flooding.

But the storm caused far less damage than feared, causing a rebound in stocks such as Lancashire, Amlin and Catlin, which have large US property accounts, and others such as Hiscox that reinsure US insurers.

Catlin shares jumped 11 per cent in trading after catastrophe modelling firm AIR said insured losses in the US and the Caribbean would come to no more than $7.1bn (£4.3bn).

Lancashire closed up 6.7 per cent while Hiscox finished 2.8 per cent higher, outperforming the FTSE.

“This is just a small earnings event for them,” said Jefferies analyst James Shuck, saying most losses would fall on primary US insurers and the US national flood programme rather than the London market.

But Sebastian Kafetz, relationship director in the insurance team at Lloyds Bank Corporate Markets, said insurance stocks were also rising on expectations of US premium rates increasing after years of declines.

“Loss estimates at the moment range from $5-12bn and our view is that it will be at the higher end of that,” Kafetz told City A.M. “This has been a year of a significant number of catastrophes and the insured global cost to date is much larger than, for instance, hurricane Katrina.

“The other side to that is that generally it will lead to significant insurance rate rises. Going forwards, the market should be a lot more profitable.”

Shore Capital analyst Eamonn Flanagan said US and Bermuda-based insurers were also benefiting from investor relief.

“The bulk of the damage is likely to emanate from flooding, which is not a standard feature on US homebuyers contracts. Hence, the losses are likely to be from commercial and business interruption cover,” he said.