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JPMorgan says hurricanes will cost insurance industry $100 billion but will help some of the stocks

  • JPMorgan predicts double-digit percentage increases for U.S. property premiums starting in January 2018.
  • "We think industry insured losses from the 3Q hurricanes will approach or exceed $100bn, which should be sufficient to result in higher property insurance and reinsurance prices given it would wipe out most of the industry's excess capital," the firm's analyst writes.
Flooded homes are shown near Lake Houston following Hurricane Harvey August 30, 2017 in Houston, Texas.
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Flooded homes are shown near Lake Houston following Hurricane Harvey August 30, 2017 in Houston, Texas.

Massive losses from the damage caused by Hurricane Harvey, Irma and Maria will have dramatic impact on the insurance industry's finances, according to a top Wall Street firm.

JPMorgan told its clients while the hurricane's costs will hurt many insurance companies' earnings, it may boost insurance broker stocks.

"We think industry insured losses from the 3Q hurricanes will approach or exceed $100bn, which should be sufficient to result in higher property insurance and reinsurance prices given it would wipe out most of the industry's excess capital," analyst Sarah DeWitt wrote in a note to clients Thursday.

DeWitt cited how property insurance premiums rose 10 percent after the 2005 hurricanes. She predicts similar double-digit percentage increases for U.S. property premiums starting in January 2018.

"The rise in property insurance and reinsurance prices could help the insurance brokers which should benefit from higher prices with none of the losses," the analyst wrote. "Although the [insurance broker] stocks are up following the hurricanes, we think the increase in prices could be higher than consensus expects."

As a result, the analyst recommended the shares of Aon and Marsh & McLennan. She has overweight ratings on both insurance brokers. DeWitt raised her price target for Aon shares to $165 from $155 and her price target for Marsh & McLennan shares to $95 from $90.

On the flip side, DeWitt cut her earnings per share estimates for several property insurance and reinsurance companies by more than 100 percent due to the hurricanes.

She lowered her 2017 earnings per share forecasts for XL Group to negative $2.49 from $3.32 and Validus Holdings to negative $2.31 from $3.95.