Behind the Money

Irene and Insurers: Less Damage, Excuse to Hike Prices

Hurricane Irene was the "Perfect Storm" for insurers, but in a very different sense of the term. The weakened storm that spared New York City from major damage gave the wealthy and rarely hit Northeast enough of a scare because of ominous weather forecasts leading up the storm that property insurers will be able to raise pricing even more next year, according to a Morgan Stanley analyst.

A fallen tree which also knocked over a power line is seen on Loughboro Road after Hurricane Irene swept through the area.
Mandel Ngan |AFP | Getty Images

"Following $70b+ in global catastrophe losses (Australian floods, New Zealand quake, Japan quake/tsunami, US tornados in Joplin and Tuscaloosa) we never felt 'one more storm' was required to drive higher pricing in 2012," wrote Morgan Stanley's Gregory Locraft in a note to clients late Sunday. "Nonetheless, we believe Irene serves as that 'one more storm' for the doubters and the associated media focus became in effect a strong advertising campaign for the P&C industry. We expect higher prices and higher demand into 2012 across all property-related lines."

Locraft estimates insurers will face overall losses from Irene of less than $10 billion, based on early reports from risk-modeling firms used by the insurance industry. Total economic losses will likely be twice that, according to the analyst.

The worry over Irene kicked into high gear on Wednesday when the storm was still a Category 3 and various computer models showed a destructive patch up the Eastern seaboard, ultimately hitting New York city and Long Island. New York Mayor Michael Bloomberg ordered the first ever mandatory evacuationof low-lying areas and shut down the subway system on Saturday before the storm.

Morgan Stanley's favorite insurance stocks are RenaissanceRe, Travelers , ACE Limited , Axis Capital Holdings, and Chubb.

"Each has the balance sheet strength to pay Irene-related claimsand plenty of excess capital to drive organic growth in an improving P&C marketplace," wrote Locraft. "With shares at all-time valuation lows management can drive shareholder returns via buybacks and above market dividend yields."

To be sure, flooding from Irene has been intense in many areas. New Jersey Governor Chris Christie Sunday night urged residents to stay home from work because of the floods on roadways and rail systems, according to the NYTimes. Of course, property and casualty insurers generally don't cover flood damage.

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