Insurance Stocks Could See a Tailwind, Says Analyst

Raymond James analyst Greg Peter says the slumping casualty-insurance sector could get a break. Photo: Brandon Bell/Getty Images

The Atlantic hurricane season just started, with flash floods stretching from Texas to Manhattan. Will that leave insurance stocks underwater?

Actually, they’ve been sinking all spring. An index of S&P 500 nonlife insurers compiled by Raymond James analyst Greg Peter fell 3% in the June quarter, compared with the S&P 500’s 11% rise. Insurance brokers did worse, averaging a 10% drop.

In a Tuesday note, Peters suggests that insurance stocks sagged on word of weak pricing for big commercial accounts, and as investors moved to more-volatile stocks. Nevertheless, he expects good June earnings reports from the sector.

He’s hoping for happy surprises from Mercury General , the Los Angeles-based insurer that’s bounced back this year from the 2024 L.A. wildfires. Although the June to December hurricane season has begun, he thinks that insurers Allstate , Travelers , the reinsurer Everest Group, and the broker Willis Towers Watson will do fine. He has Strong Buys on all of them.

Summer is coming in, but the forecast calls for just a slightly above-average wave of storms this season. Last week, Colorado State University revised its outlook down from 18 named storms, to 16. The long term average has been 14.

Of those storms, eight could be hurricanes, and three of those could be major. The average is for three major hurricanes out of seven in a season. Florida has around a 60% chance of suffering landfall, while the chances in Louisiana and North Carolina are a bit above 40%.

The June quarter was light on catastrophes, compared with the long-term average, Peters notes. The same quarter of 2024 had 200 more tornadoes and 60 more hail storms.

“We believe the lighter [catastrophic] environment could be a tailwind on nonlife carriers’ earnings” in the second quarter, Peters concludes.

Write to Bill Alpert at william.alpert@barrons.com