QBE Insurance shares hit a series of near 11-month lows yesterday on fears that the spate of hurricanes in the US will hurt the insurer.
The shares ended down 2.8% at $9.92, the lowest they have been since early last November.
The shares fell more than 3% to a day’s low of $9.83.
Analysts fretted that mounting claims from a string of hurricanes in the Americas has the potential to overwhelm the insurer’s reinsurance cover.
JP Morgan reckons QBE has an annual ceiling of $2.05 billion in catastrophe cover, and hurricanes Harvey, Irma and Maria have contributed heavily to total claim costs of $US1.867 billion in 2017,
QBE’s reinsurance cover will be "OK assuming no more catastrophes", the analysts wrote, but noted there is a "potential for [a] breach going forward".
Shaw & Partners analysts also highlighted this risk as they downgraded the stock to “sell", mostly on the basis that incoming CEO Pat Regan will reset earnings and expectations.
“Long term investors can hold on for the Pat Regan turnaround, but we believe more pain before gain,” Shaw’s David Spotswood wrote in a note yesterday.
Earlier this month, Citi analysts wondered if QBE Insurance Group may hike its premiums, despite the expectation that almost the entire cost of its exposure to hurricanes Irma and Harvey (before Maria) will be covered by its robust reinsurance program, according to Citi.
Unlike its competitors IAG and Suncorp, QBE has major operations in North America, leaving it open to losses.
According to the Florida Citizens Property Insurance Corporation, QBE’s insured value exposure to commercial residential property in Florida is $17 billion, around 10% market share of this class.
The cost of Irma and Harvey combined could mean a “capacity crunch” across the sector that will drive up rates, Citi analyst Nigel Pittaway wrote.
“This could mean that growth is back on the agenda for QBE, perhaps suggesting some upside risk to our topline forecasts," he said.
QBE has so far declined to comment how Irma and Harvey will cost the company.
