Silver lining for insurers from Hurricane Floyd

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The Independent Online
CANNY STOCKBROKERS are urging clients to see Hurricane Floyd as an opportunity to buy weather-ravaged insurance stocks, despite fears that the bill for the industry worldwide could top the $15bn paid out for Hurricane Andrew in 1992.

Concern in the wake of reports that Floyd could be three -times the size of Andrew, which laid waste vast tracks of Louisiana and Florida seven years' ago, has hit shares in the big American insurers and in continental European reinsurers such as Swiss and Munich Re over the past few days.

However, shares in CGU and Royal & Sun Alliance, the most heavily-exposed UK composite insurers to the southern United States, saw some buying yesterday after brokers said the worries were exaggerated.

Roman Cidzyn at Merrill Lynch said: "We are not of the impression that the overall impact will be large. CGU and RSA have both merged since the last big hurricane and have largely reinsurerd their risks. Munich Re and Swiss Re have a lot of exposure but they also have a lot of fat."

Andrew Ritchie at Fox-Pitt Kelton is more sanguine still. He reckons that while the losses will be negative in the short-term, longer term it will lead to a hardening of rates, providing a much needed boost to profitability in an industry plagued by overcapacity.

"Both CGU and Zurich have a significant presence in the areas affected, but it is worth bearing in mind that these groups have significant other businesses. Any significant weakness in these stocks may present buying opportunities."

Investors' jitters over the past few days have not been helped by the reluctance of companies involved to risk quantifying potential exposure.

Swiss Re's response to analysts' questions at a conference call earlier this week that the impact would depend on "where it hits and at what speed," was typical of the industry.