Investors are ditching insurance stocks as Hurricane Irma pounds the Caribbean, even though industry leaders say companies will be able to handle the financial impact.
"There is an abundance of capital," said Steve Bowen, chief meteorologist at Aon, one of the few insurers whose shares haven't taken a beating during hurricane season. "The industry should be able to absorb the losses from not just what Irma ends up causing, but what we saw last week from Hurricane Harvey."
In numerous interviews over the past several days, principals across the industry are offering assurances that, given the uncertainty of the storm's path and the unknown amount of damage it will cause, companies are well-capitalized and will be able to meet their requirements.
Nevertheless, investors are heading for the exits.
The SPDR S&P Insurance exchange-traded fund dropped nearly 2 percent in trading Thursday that added to a 4 percent slide since Hurricane Harvey hit in late August. Individual names fared even worse.
Aspen Insurance Holdings has tumbled 15 percent over the past week while Everest Re and Validus both fell about 11 percent. Aon shares are actually up fractionally during the period, one of only four holdings in the insurance ETF to not suffer losses.
Given Irma's Category 4 status, investor jitters are to be expected. Credit Suisse already has estimated that the insured losses could hit $125 billion or more, making Irma easily the costliest hurricane in U.S. history.
Florida's situation is somewhat unique: Most of the mainline insurers have fled the state, leaving a good portion of the coverage to Citizens Property Insurance. There are worries that the insurer wouldn't have the resources to support the losses and that the state would have to step in.
However, an official at Florida Citizens insisted that is not the case.
"We are in very good financial shape as the state's insurer of last resort," said Michael Peltier, media relations manager at Citizens. "We have ample surplus to cover incredibly severe storms, so we don't want our policyholders to worry about that at this point."
Concerns have been raised over the years about whether Citizens has enough cash reserves to cover its risk. Peltier said the company has used experience as a guide to make sure it has proper capital levels.
"We are as best prepared as we've been since we were created back in 2002," he said. "We learned a lot after '04 and '05 and have been using the stormless years since then to bolster our response capabilities and put our financial house in order."
Reinsurers are taking the biggest hit so far. The firms act as backstops for insurance companies in the case of catastrophic events, and the financial hit will be substantial.
As Florida has sought ways to make sure more property owners hold flood insurance who are not participating in the national program, the private insurers themselves have turned to the reinsurers for help. Reinsurers including Renaissance Re, Validus and XL Group have drawn business as part of the trend.
Irma will be the first major storm to see how the system holds up.
The worst could be yet to come
"Florida insurers are well-capitalized, but I think you might see more of an impact on the reinsurance world instead of the private world," said Howard Mills, global insurance regulatory leader at Deloitte. "That said, the reinsurers are also very well-capitalized."
Rather than seeing widespread shortfalls in the industry, Mills instead believes the longer-term effects could see higher premiums and still more private insurers leave Florida. That comes at a particularly ticklish time considering the National Flood Insurance Program expires at the end of September and Congress still has not come up with a fix.
There have been various proposals, including one simply to leave the program mostly intact and put off solutions to its financial difficulties for another day. But the issue remains contentious and without an easy solution.
"There was a lot of optimism and hope that Congress might be doing something creative this time in terms of changing the program and bringing private sector involvement back into flood insurance," Mills said. "The fact that you could have these big losses and many, many people impacted may lead to making it easier for Congress to reauthorize the program as it is and reauthorize the Treasury to loan it more money."
For Mills, the situation gets scarier when realizing that the worst could be yet to come.
"This is really worrying that we're still very early in the hurricane season," he said. "The industry's got to be prepared and has to assume there will be more losses to come."
WATCH: Florida Gov. Rick Scott assesses the situation on the ground.
