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US P&C stocks fall as Hurricane Michael ravages Florida, broader market tumbles

In a week where only a handful of insurance companies were higher amid a wider market sell-off, U.S. property and casualty insurers declined as Hurricane Michael rampaged through Florida and the southeastern U.S.

The S&P 500 slumped 4.10% to 2,767.13, while the SNL U.S. Insurance Index plunged 5.13% to 1030.03 for the week ending Oct. 12.

U.S. stocks were hit particularly on Wednesday and Thursday with the stock rout impacting Asian and European markets as well. Stock markets in Japan, Hong Kong and Shanghai were down sharply, while the FTSE 100, CAC 40, DAX and FTSE MIB indexes in Europe dropped as well.

Hurricane Michael made landfall Wednesday afternoon in Mexico Beach, Fla., with maximum sustained winds of 155 miles per hour and a central pressure of 919 millibars, making it one of the most intense tropical systems to impact the mainland U.S. in recorded history. Michael moved swiftly through parts of Georgia, the Carolinas and the mid-Atlantic as a tropical storm on Thursday, knocking out power to thousands of residents across the region and causing several confirmed fatalities.

Howard Mills, global insurance regulatory leader at Deloitte, said the strength of the storm was "virtually unprecedented." He expects wind damage will be the "significant insured loss component" from the storm. But despite Michael's historic ferocity, Mills believes the insurance industry is so well capitalized that it is not likely to end up being a "market-changing event."

"I don't see any severe impact on the insurance market with regard to capacity or pricing," he said.

Bob Farnam, a research analyst at Boenning & Scattergood, noted that stocks have been impacted much less than they were last year after Hurricane Irma swept through Florida, Puerto Rico and parts of the Caribbean.

"The market has pretty good understanding that this is not going to be the same potential loss that Irma was when it was almost hitting Miami," he said. "I think the stock market is probably appropriately reacting by being down a bit, but not being overboard."

Primary insurance companies likely have the most exposure from this storm, and insured damage in the "single billions of dollars" are expected to "tap into reinsurance levels but not significantly," Farnam said. The storm is not expected to have an impact on the reinsurance pricing environment, Wells Fargo analyst Elyse Greenspan said in a note to clients.

Preliminary estimates from Karen Clark & Co. put insured losses close to $8 billion, while CoreLogic's estimated total insured losses of between $3 billion and $5 billion.

Publicly traded insurers most exposed to Florida commercial property, by direct premiums written in 2017, include United Insurance Holdings Corp., Heritage Insurance Holdings Inc., Chubb Ltd. and Markel Corp. Citizens Property Insurance Corp., Heritage and United Insurance are among the insurers with the largest homeowner's exposure in Florida.

United's stock declined 4.92% for the week, while Heritage slipped 9.8%. Chubb shares fell 6.11% and Markel's shares dropped 4.28%.

Florida's Hurricane Catastrophe Fund is likely to weather a large loss from Michael, but it "shouldn't have a problem" handling it, Farnam said.

"Last year it seemed to handle things OK. This is certainly nothing to what they saw last year," Farnam said.

Although most property and casualty insurers saw moderate declines, life insurers generally experienced steeper drops this week amid volatility in both the equity and bond markets. Lincoln National Corp. tumbled 8.17%, Voya Financial Inc. fell 7.61% and MetLife Inc.MetLife Inc.'s shares slid 7.3%.

As previously expected, the Department of Justice indicated it will approve CVS Health Corp.'s pending $69 billion deal to acquire Aetna Inc. after both companies divest their Medicare Part D plans. Aetna's stock was off 1.4% on the week.

AmTrust Financial Services Inc. was one of a handful of companies to end in the green this week. Its stock rose 0.35%. Syncora Holdings Ltd. also saw a modest gain of 1.25%.

Health Insurance Innovations Inc., MBIA Inc. and First American Financial Corp. were among the biggest losers this week dropping 16.83%, 12.73% and 10.37% respectively.