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Aug 28, 2017

S3 Analytics: Insurance Sector Trades Down on Potential Harvey Liabilities

Insurance stocks were down on Monday in the aftermath of Hurricane Harvey’s catastrophic effect on Texas, and in particular the city of Houston. The broader insurance ETF’s Spider S&P Insurance ETF (KIE US) and the iShs U.S. Insurance ETF (IAK US) were down just over 1% in mid-afternoon trading while the Powershares KBW Property & Casualty ETF (KBWP US) was down over 1.8%.

Short interest in the Insurance sector is currently up to $16.8 billion, with a $313 million increase over the last month. The most shorted sub-industry was Property & Casualty, at $6.8 billion of short interest, with Berkshire Hathaway A &B (BRK/A US & BRK/B US) making up almost a third of those shorts at $2.1 billion. With the exception of Marsh & McLennan Cos. (MMC US), all of the top ten most shorted stocks in the Insurance sector were trading down today.

As Hurricane Harvey continues to wreck havoc in Texas, the initial estimated cost of $30 billion in damages may increase, adding more losses to the insurance companies’ bottom line. JPMorgan estimates that insured losses may reach $20 billion, with the other $10 billion uninsured as damage by flooding is not usually covered in basic policies or covered by the government’s National Flood Insurance program.

Overall short interest in insurance based ETF’s is minimal, with only $23 million of short interest in the three major ETF’s. In addition to insurance company losses on their homeowner and commercial products, the flooding resulting from Harvey’s continued rainfall will also affect their automobile insurance products with many cars totaled due to flood damage. We expect short interest to increase in the Insurance sector as more information about Harvey’s damage in Texas becomes available.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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