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Sep 5, 2017

S3 Analytics: Insurance Sector Short Interest Decreasing Post-Harvey

Texas Governor Greg Abbott estimates damage from Hurricane Harvey will be between $150 to $180 billion, with much of the damage on uninsured properties. FBR analyst Randy Binner estimates that at least $10 to $14 billion of these losses are insured under automobile, commercial or homeowner policies. The insurance sector has traded down since August 22nd, with the Spider S&P 500 Insurance ETF (KIE US) down 3% over the last two weeks.

Although stock prices in the Insurance Sector are down, short interest has actually declined. Short interest in the sector is $16.5 billion, down $272 million over the last week. More specifically short interest in the Property & Casualty Sub-Industry is down $193 million over the last week, bringing total short interest to $6.6 billion.

Total short interest for the top ten shorts in the Property & Casualty Insurance sub sector was down by $188 million over the last two weeks, with shorts covering $226 million of their AIG and Aflac positions but putting on an additional $158 million of short trades in Metlife. With the entire Insurance sector down in post Hurricane Harvey trading short sellers in the Property & Casualty Sector recouped over half their year to late losses in the last two weeks. The top ten shorts in the sector are now down only $170 million year-to-date after earning $188 million in profits over the last two weeks. 

Short sellers may the following the 2005 post Hurricane Katrina trading pattern from where insurance companies were initially down on massive liability fears but rallied for several months after their insurance losses ultimately proved to be not as severe as expected. Short sellers may be taking their recent profits and covering their shorts in anticipation of a prolonged rebound rally following this knee-jerk drop in prices.

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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