Berkshire, AIG, PGR should be on investors’ radar amid grim hurricane forecast: CFRA

This year’s North Atlantic hurricane season is anticipated to be highly active, potentially bolstering pricing across various lines of property-casualty insurance and reinsurance, thereby catalyzing certain underwriters’ stocks, CFRA wrote in a recent note.

Colorado State University’s Department of Atmospheric Science is predicting a “very active” hurricane season in 2024, with an expected 23 named storms, 11 hurricanes, and five major (category 3-5) hurricanes.

In 2023, by comparison, there were 20 named storms and seven hurricanes. Three of the hurricanes reached “major” status.

As such, analyst Catherine Seifert said, “we think the most prudent way to leverage the still-firm insurance pricing environment is to acquire shares of reinsurers and insurers with limited or manageable catastrophe and/or hurricane exposure,” including Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A), American International Group (NYSE:AIG), Progressive (NYSE:PGR) and Arch Capital Group (NASDAQ:ACGL).

She added that insurance brokers without exposure to claims, chiefly Arthur J. Gallagher (NYSE:AJG), also offer investors a compelling opportunity in a robust pricing backdrop.

The National Oceanic and Atmospheric Administration is also predicting above-normal hurricane activity for the Atlantic basin this year due to a confluence of factors. Those include near-record warm ocean temperatures in the Atlantic Ocean, the development of La Nina conditions in the Pacific, reduced Atlantic trade winds, and less wind shear, all of which tend to favor tropical storm formation.

CFRA’s Seifert pointed out that the dynamic of an above-normal hurricane season buoying pricing for numerous P&C insurance lines has been pervasive for years, according to commercial property pricing trends.

“Average rate increases for commercial property coverage have outpaced those of the overall commercial lines market for the last several years,” the note said, citing a quarterly survey conducted by the Council of Insurance Agents and Brokers.

That comes as insured catastrophe losses in the U.S. over the last decade have broadly moved higher, with losses hovering at around $100B in each of the last few years. Therefore, insurers have maintained their pricing power in an effort to offset potential insured losses from catastrophe events.

Do note that Berkshire’s (BRK.A) Q1 2024 insurance earnings were partly strengthened by improved operating results, particularly at GEICO, which writes property and casualty policies. Its overall insurance business incurred no losses from significant catastrophe losses in the quarter, vs. $350M in the year-ago period.

Seeking Alpha’s Peer tab compares BRK key stats with AIG, PGR, ACGL, and AJG. This SA stock screener shows investment ideas in the P&C insurance space.