On Friday, JPMorgan analysts reported that the wildfires currently raging in the Los Angeles area have taken a turn for the worse since yesterday, with containment efforts showing little progress and additional fires igniting nearby.
The firm anticipates that the financial impact of the fires will primarily affect homeowners’ insurance coverage, with companies such as Allstate Corp (NYSE:ALL), The Travelers Companies Inc (BVMF:TRVC34) (NYSE:NYSE:TRV), and Chubb Limited (NYSE:NYSE:CB) being the most exposed among publicly traded insurers.
The impact on commercial property coverage is expected to be less significant but will still involve companies like TRV, American International Group Inc (NYSE:NYSE:AIG), CB, and Kinsale Capital Group Inc (NASDAQ:NYSE:KNSL), which maintains a "GREAT" financial health score according to InvestingPro analysis.
The analysis suggests that while higher losses could potentially lead to increased future pricing in California’s insurance market and for reinsurance rates, the immediate losses are considered a more significant negative for the carriers in question.
Progressive Corp (NYSE:NYSE:PGR) is noted as an exception; with minimal exposure to California homeowners’ insurance, it could stand to gain from greater pricing discipline among mutual carriers, who are expected to bear a substantial portion of the losses from the LA fires and are key competitors in personal auto insurance. Among the affected insurers, Kinsale Capital has shown remarkable resilience with a 36.12% revenue growth over the last twelve months, according to InvestingPro data.
In terms of market exposure, Allstate, Travelers, and Chubb are highlighted as the most vulnerable public insurers to the California homeowners’ market. Allstate’s market share in California is lower than its national presence and has seen a decline since the 2018 Camp fire. Travelers’ and Chubb’s market shares in the state are more closely aligned with their national figures.
However, due to Chubb’s focus on high-net-worth clients and the affluent residential areas affected by the fires, its share of the losses may exceed its market share. Notably, InvestingPro analysis indicates Kinsale Capital’s strong market position is supported by an impressive 35% return on equity and currently appears undervalued based on its Fair Value assessment.
The report also points out that reinsurers, including Arch Capital Group Ltd (NASDAQ:ACGL) and RenaissanceRe Holdings Ltd (NYSE:NYSE:RNR), are at risk as rising loss estimates could trigger reinsurance attachments. On the other hand, commercial lines carriers are not expected to be materially affected, and insurance brokers are anticipated to remain unaffected.
The provided tables detail market shares in homeowners’ and commercial fire insurance, as well as losses from significant California wildfires over the past ten years. For deeper insights into insurance sector metrics and comprehensive analysis, investors can access detailed Pro Research Reports for over 1,400 US stocks through InvestingPro.
In other recent news, Kinsale Capital Group has demonstrated impressive financial performance in recent times. The specialty insurance provider posted a 27% increase in operating earnings per share and a 19% rise in gross written premiums in Q3 2024 compared to Q3 2023. The company’s combined ratio was reported at 75.7%, and the nine-month annualized operating return on equity reached 28.2%.
Morgan Stanley (NYSE:MS) initiated coverage of Kinsale Capital with an Overweight rating, citing the company’s potential for continued expansion and profitability. Other firms like BMO Capital Markets, Truist Securities, RBC Capital, and Wolfe Research have also updated their outlooks on Kinsale Capital, reflecting a variety of perspectives on the company’s financial health and future potential.
Kinsale Capital’s board recently approved a $100 million share buyback program, indicating confidence in the company’s future performance. Despite facing challenges such as increased competition and the impact of recent hurricanes, Kinsale anticipates continued growth in new business submissions with a long-term growth opportunity of 10% to 20%.
The 2024 earnings per share estimate for Kinsale Capital remains unchanged at $15.70, while the 2025 EPS forecast has been increased to $18.50 from $18.30. This shift reflects a slightly slower top-line growth of 16%, partially offset by investment income.
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