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Irene's Hit on Insurers and How to Play It

Hurricane Irene is expected to cause billions of dollars in damage in 14 states along the eastern U.S. seacoast, but property/casualty insurance companies are not expected to see much of a hit from damage claims, UBS analyst Brian Meredith told CNBC.

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That means insurance stocks, now up after falling earlier Friday in anticipation of Irene making landfall sometime Saturday, could go higher Monday after the storm blows through.

The biggest property insurers — Allstate, Travelers and Chubb are "going to be big beneficiaries of a major event,"  said Meredith.

The market is currently factoring in a $10 billion-plus event, but if it's less than that, say a $4 billion to $5 billion event, "we come in on Monday morning...and you'll see those stocks rally a little bit," he said. "Five billion dollars is not much of an event for the property/casualty industry. It’s pretty immaterial."

Much of Irene's damage is expected to come from flooding, which is not covered by private insurance companies. But private insurers could be on the hook for wind-driven property damage as well as water damage from expected heavy rains.

According to Kinetic Analytics, the worst expected damage from a Category 2 Irene would be to Massachusetts, with $5.66 billion. A hit on North Carolina would be $110 million. In between the cost to Rhode Island would be $1.6 billion, Connecticut would be $882 million and New York — where mandatory evacuation of low-lying coastal areas was announced by Mayor Michael Bloomberg, including lower Manhattan where the New York Stock Exchange is located — would be $523 million, according to the research firm.

A Category 2 storm packs winds of 96 to 110 miles per hour on the Saffir-Simpson hurricane scale.

Hurricane Irene has already caused between $500 million and $1.1 billion in insured losses in the Caribbean, according to catastrophe modeling company AIR Worldwide.

Insurers' shares are up Friday because there is "a recognition this is what they do for a living," J. Paul Newsome of Sandler O'Neill told CNBC. Investors recognize paying catastrophe claims is  "a normal part of business." Newsome has buy ratings on Ace , Progressive and XL .

Residents in N.C. Prep for Irene

The five most costly hurricanes were Katrina in 2005, costing $108 billion in damage, followed by Ike in 2008 at $29.5 billion, Andrew in 1997 at $26.5 billion, Wilma in 2005 at $21 billion and Ivan in 2004 at $18.8 billion.

Much of the insurers' losses from paying claims will be passed on to their own insurers, known as reinsurers, who in turn are likely to raise premiums when renewals come through Jan. 1. The insurers are then likely to raise their own premiums, Meredith said. Meredith doesn't own shares but there is an investment banking relationship between UBS and the insurers he covers.

According to the Insurance Information Institute in New York, the insurance companies are financially ready for the storm.

“More than half a trillion dollars had been set aside by the nation’s auto, home and business insurers in the form of a policyholders’ surplus by the end of the first quarter of 2011. This $564.7 billion surplus, a dollar amount equivalent to the industry’s cumulative net worth was, and remains, a reliable indicator of the industry’s claims-paying ability,” said Dr. Robert Hartwig, president of the I.I.I., in a statement.

Reuters contributed to this report.