THEPALMER/E+ via Getty Images
This year’s North Atlantic hurricane season is expected to be very active and could boost pricing for various property casualty insurance and reinsurance policies, stimulating stocks of some carriers, CFRA wrote in a recent report.
Colorado State University Department of Atmosphere science is predict 2024 is a “very active” hurricane season, with 23 named storms, 11 hurricanes and five major (Category 3-5) hurricanes expected.
In comparison, 2023 has 20 named storms and seven hurricanes. Three of the hurricanes reached “major” levels.
As a result, “we believe the most prudent way to take advantage of the still-firm insurance pricing environment is to acquire shares of reinsurers and insurers with limited or controllable catastrophe and/or hurricane exposure,” analyst Catherine Seifert said. , which includes Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A), American International Group (NYSE:AIG), progressive (NYSE:PGR) and Arch Capital Group (NASDAQ: ACGL).
She added that insurance brokers with no claims exposure, primarily Arthur J. Gallagher (NYSE:AJG), also provides investors with compelling opportunities against the backdrop of strong pricing.
The National Oceanic and Atmospheric Administration also predicts that hurricane activity in the Atlantic basin will be higher than normal this year due to a combination of factors. These include near-record warm ocean temperatures in the Atlantic, the development of La Niña conditions in the Pacific, declining trade winds in the Atlantic, and reduced wind shear, all of which favor tropical storm formation.
CFRA’s Seifert noted that based on commercial real estate pricing trends, the dynamic of above-normal hurricane seasons boosting pricing for many property and casualty insurance products has been prevalent for years.
The report cited a quarterly survey conducted by the Council of Insurance Agents and Brokers as saying that “over the past several years, average rates for commercial property insurance have increased at a faster rate than the overall commercial insurance market.”
At the same time, catastrophe insured losses have generally increased in the United States over the past decade, with losses hovering around $100B annually for the past several years. As a result, insurers retain pricing power to offset potential insurance losses from catastrophic events.
Note that Berkshire’s (BRK.A) first-quarter 2024 insurance earnings were strengthened in part by improved operating results, particularly from GEICO, which underwrites property and casualty policies. Its overall insurance business suffered no major catastrophe losses during the quarter, compared with $350 million in the year-ago period.
Seeking Alpha’s Peers tab compares BRK’s key statistics to AIG, PGR, ACGL and AJG. This SA stock screener showcases investment ideas in the property and casualty insurance space.
