The Valuation Impact of Major Hurricanes: A Market Study
Todd Fries | December 6, 2024
Hurricanes have caused the most destruction of any recorded weather disasters in US history. 1 Their devastating impact not only results in loss of life but also significant economic disruption. From 1980 to the present, hurricanes have accounted for approximately $1.5 trillion in damages, with an average cost of $26.9 billion per storm. 2 In recent years, there has been a noticeable increase in both the frequency and severity of hurricanes impacting the United States. 3 This trend not only heightens the potential for loss of life and property damage but also presents significant challenges for the insurance industry. This strain can influence their financial resources and affect their ability to underwrite new policies or pay out future claims.
From a valuation perspective, property and casualty (P&C) insurance companies will seek to take actions to preserve and even enhance their values. One approach to address the increasing climate-related risks is to raise premiums, which has been a trend over the past few years. The cost of both automobile and homeowners insurance has surged recently, far outpacing inflation. 4
Another method to mitigate the impacts from hurricanes and other weather-related disasters is to leave those markets completely. Some major insurers have already begun doing this, retreating from hurricane-prone states 5 as insuring hurricane‑related damages has become increasingly difficult. 6 As such, P&C insurers have been able to reduce the impacts from hurricanes and other weather-related disasters as evidenced by P&C firms outperforming the S&P 500 over the past 10 years. 7
P&C Firms versus the S&P 500
However, even as P&C insurers work to diminish the impact of long-term trends, investors in the space will still be subject to volatility arising from storm-related events such as the back-to-back major hurricanes, Helene and Milton, making landfall in Florida in 2024. The most direct means of measuring the impact of an individual storm on insurer valuations is through the behavior of share prices surrounding hurricanes.
This article explores how hurricane-related losses affect the market's perception of risk and value in the insurance sector. By examining share price reactions to recent hurricanes, we aim to shed light on how investors and stakeholders assess the resilience and vulnerabilities of insurance firms in the face of potentially escalating climate risk. We conducted a market event study around the time frame of Hurricane Helene and Hurricane Milton, using a regression model to control for unrelated market forces and found that equity markets reacted significantly to some (but not all) hurricane‑related developments during that time frame.
Selected Companies
To begin our analysis, we selected the following nine companies (the "Subject Companies") based on direct premiums written in hurricane-prone states. 8 The following are the name and stock ticker symbol for each company.
- The Allstate Corporation ("ALL")
- Berkshire Hathaway Inc. ("BRK.A")
- Chubb Limited ("CB")
- The Hartford Financial Services Group, Inc. ("HIG")
- Kinsale Capital Group, Inc. ("KNSL")
- ProAssurance Corporation ("PRA")
- The Progressive Corporation ("PGR")
- The Travelers Companies, Inc. ("TRV")
- Universal Insurance Holdings, Inc. ("UVE")
Period of Study
We analyzed the Subject Companies over the period from September 23, 2024, to October 30, 2024, which coincided with the development and aftermath of both Hurricane Helene and Hurricane Milton. Specifically, we began our analysis on the day that the first advisory from the National Hurricane Center was issued for Helene and ended it on the most recent day that we have data for as of writing this article. 9
During this period of study, we evaluated the daily stock price moves of the nine Subject Companies and compared them to the S&P 500, a proxy for the broad market index, to control for general market movements that may be unrelated to the storms. Then, using a regression analysis against the market index, we sought to identify days in which a statistically significant stock price move occurred to evaluate whether storm-related news on those days may account for the anomalous market moves.
Interestingly, despite a steady news flow regarding the storms during our period of review, only one day, Monday, October 7, 2024, showed a statistically significant anomalous move with a majority of the Subject Companies' stocks underperforming the overall market that day. Early that morning, Milton rapidly intensified to a Category 5 hurricane. Subsequently, a combined market capitalization of approximately $36.6 billion was lost from the Subject Companies. At this point in time, Milton was still 2 days away from making projected landfall on October 9. Many forecasts had it directly hitting the highly populated Tampa Bay area before sweeping through the rest of central Florida and out into the Atlantic Ocean. 10
Market Capitalization of S&P 500 versus Selected Insurance Firms (In Billions of Dollars)
The graph above shows the significant abnormal movement in share price (and thus market capitalization) of the Subject Companies on October 7, 2024. There was a combined loss of $36.6 billion in market capitalization on that day.
Estimates of Damages
Milton and Helene were estimated to cause upward of $50.0 billion each in damage—a number that only eight hurricanes in history have surpassed. 11 However, these estimates are far from precise; accurately assessing the damage often takes months, and the larger the storm and more widespread the damage, then the further complex the calculations become.
While both hurricanes were estimated to cause approximately the same amount of total damage, they differed greatly in insured damage estimates. This was largely due to the nature of the damage incurred—Helene was mostly water damage, which is unlikely to be covered, while Milton was mainly wind damage, which is more likely to be covered. 12 In the case of Helene, though, the disparity between insured damages and total damages was tremendous: In western North Carolina, which was one of the areas hit hardest by the storm, it's estimated that fewer than 5 percent of households were covered for the types of damage they sustained. 13 The areas impacted by Milton, on the other hand, were relatively well-insured against the types of damage received.
This disparity was reflected in the estimates of insured damages. We analyzed multiple sources and, on average, determined that Helene was estimated to have only $8.6 billion in insured damage while Milton's insured damage estimate was $43.4 billion. 14 In both cases, early estimates of insured damage varied more so than estimates from just a few days later, as the reports converged as more information about the true nature of damages was learned. In both cases, as time went on, damage estimates slightly crept higher—though not significantly enough to materially impact stock prices. 15
Conclusion
We found that October 7, 2024, was the only day with significantly negative returns. On that day, approximately $36.6 billion in market cap was lost. Insurable damage estimates for Milton were coming in close to $43.4 billion—with some worst-case estimates as high as $100 billion in insurable damage. 16 While obviously the market reaction to the storm is not necessarily a predictor of actual insurable losses, it is clear that as the storm rapidly intensified, the market reacted negatively.
Milton exhibited a historic rate of intensification to a Category 5 hurricane with a peak intensity of 180 mph winds (although the storm did weaken prior to landfall), being the third fastest intensifying storm on record in the Atlantic Ocean. 17 Additionally, the storm's forecasted track toward heavily populated areas likely weighed on the markets. Alternatively, despite also bringing catastrophic damages, the market reaction to Hurricane Helene was more muted, possibly for a variety of reasons. First, Helene's forecasted and eventual path was toward relatively less populated areas. 18 Additionally, while peaking as a very intense Category 4 hurricane with 140 mph winds, it did not reach the strength of Milton. Finally, the hurricane season prior to Helene had been relatively quiet, and at the time, the markets were not yet contemplating the economic loss of two back-to-back major storms.
From our analysis, 19 we concluded that markets do preemptively account for some degree of hurricane damage each season and its impact on P&C firms. Although insurers can mitigate some risks by adjusting premiums or withdrawing from high-risk regions, severe storms still expose vulnerabilities. The data indicate that markets respond sharply to hurricanes with high insurable damages and the potential for significant wind impact on densely populated areas. This suggests that some storms are not fully priced into the market's valuation of insurance firms. In the case of Milton, the combination of rapid intensification, high insurable damage estimates, and high exposure risks influenced investor sentiment, resulting in substantial market value loss for P&C firms.
Thus, while investors in P&C insurers have, up until now, been able to reasonably manage risks of loss from tropical cyclones, storms of exceptional strength in highly populated areas will become an industry headwind should such events continue to increase in frequency and severity.
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