SOURCE: Rothman Research

Rothman Research

April 08, 2010 08:48 ET

Weather Forecast for Hurricane Season 2010: Circumvent Insurance Stocks

JOHANNESBURG, SOUTH AFRICA--(Marketwire - April 8, 2010) - - Two or three major hurricanes on a total of five is projected to hit the U.S. coasts in the June through November hurricane season. Forecasts from official sources are already indicating a severe and active season, and the word on the street is to steer away from insurance stocks for good reasons. In one of its recent press release, Willis Group Holdings Public Limited Company (NYSE: WSH), stated that climate change is influencing the rate of recurrence and severity of storm activity. Many insurers have come down from cloud 9 ever since the whacking from the 2004-2005 hurricanes seasons, and have started to realize that over the course of many years, their bills could be sour, sourer and sourest. 

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"Smart Money knows how and when to avoid a stock because they are ahead of the game when it comes to due-diligence. The hurricane season forecast for 2010 is a head-start to shun a bad investment decision... so use it wisely," stated Jack Benassi of "It's true that property/casualty companies seem steady due to a below-average hurricane season in 2009, but it would take just one super storm like Ike or Katrina to reset the clock to zero for these insurers. However, all is not lost, if you still want to bet on insurers; some plays in this industry, like AON Corporation (NYSE: AON), could still be cautiously 'safe' to fondle with as they have a diversified insurance portfolio through their different business segments." 

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If one looks at the top 36 costliest hurricanes list compiled by the National Hurricane Centre from beginning of the last century till date, the top ten list accounts for 7 of the most costly hurricanes since the beginning of this century that is a total in excess of $165 billion of damage. And what's even more mind-blogging, is that if one does simple arithmetic to estimate the total cost in damage for the remaining 29 hurricanes on the list, this will account for close to $151 billion, roughly $14 billion short of the list of 7 from the top ten most costliest hurricanes in American history. Is there a trend here or what?

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The recession has brought in some headaches of its own that is adding up to the more inherent issues in this space, but at this moment in time it would seem that insurers are weathering the storm.

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