These Are the Markets in Hurricane Florence’s Path
(Bloomberg) -- The punch packed by Hurricane Florence is already rattling markets from stocks to bonds.
The massive storm -- which is forcing more than 1 million people to flee and could wreak as much as $27 billion in damages as it cuts a path through the states of Georgia and the Carolinas -- has struck shares of insurance companies and funds holding catastrophe bonds as investors try to get ahead of the potential disaster.
“Investor focus appears to be turning more and more to hurricane Florence and the damage and disruption it might create,” UniCredit Bank analyst Erik Nielsen, the firm’s global chief economist, wrote in a note.
Here are some of the markets that are most vulnerable to the impending storm:
Insurance companies could be on the hook as the storm may cause $15 billion to $20 billion in covered losses from wind and coastal storm surge. Ahead of these possible claims, the sub-index of insurance firms in the S&P 500 has slid for five straight days.
Companies with the biggest exposure to the Southeast U.S. include Allstate Corp., Travelers Companies Inc., Berkshire Hathaway Inc., The Progressive Corp., CNA Financial Corp. and American International Group Inc., according to Wells Fargo Bank.
Reinsurance firms in the region include Aspen Insurance Holdings Ltd., Axis Capital Holdings Ltd., Everest Re Group Ltd., RenaissanceRe Holdings Ltd. and XL Group Ltd., the bank’s analysts wrote in a note.
Two insurance companies have a lot of business in Florence’s path: Allstate and Travelers, which are both down by more than 1.5 percent since the storm increased in intensity and focused on the southern East Coast. Both of the insurers resumed losses Wednesday after closing in the green Tuesday.
The $66 million Invesco KBW Property & Casualty Insurance ETF, ticker KBWP, has the most exposure to the insurers, with Allstate the second-largest holding and Travelers the fifth, making up a combined 15 percent of the fund. KBWP fell for the fourth straight day Tuesday, the longest streak since June. The iShares U.S. Insurance ETF, ticker IAK, also has elevated exposure to the two insurers with both ranking in the top 10 holdings.
Another sector that could take a beating are electric and natural gas companies that serve the states in the potential path of destruction. Duke Energy Corp. fell for a fourth day in a row Wednesday, the longest stretch in three months, while SCANA Corp. touched the lowest since June. Broadly, energy producers got a boost as the hurricane threatened to stretch crude supplies.
Banks facing Florence’s trajectory include TowneBank, Carolina Financial Corp., Union Bankshares Crop., United Community Banks Inc., First Bancorp, Synovus Financial Corp. and BB&T Corp., according to Raymond James.
On the flip side, home-improvement retailers are seeing a storm-related boost. Home Depot Inc. and Lowe’s Cos. both reached all-time highs this week. Generac Holdings Inc., which makes generators, touched the highest since 2014 after rising more than 8 percent over the previous four days before giving back some of the gain on Wednesday.
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 percent last year during hurricane season that took about nine 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 billion Stone Ridge Reinsurance Risk Premium Interval Fund fell 5 percent Monday, its biggest one-day decline since last September when Hurricane Irma approached Florida. The fund, which recovered more than half its losses on Tuesday, provides regular payments to investors but can lose money if storm damage costs are too high.
The collateral for more than $20 billion worth of loans bundled into securities is located in North Carolina, South Carolina and Virginia, according to Morgan Stanley. Some $8.3 billion 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 billion of insured losses, the bank said.
Consumer and residential mortgages are likely to be most impacted by the storm and many homes don’t have flood insurance in the potentially affected areas, Raymond James analyst David Long wrote.
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