The latest forecasts are for Irma to make landfall Sunday morning as a CAT 4 or CAT 5 hurricane in Miami-Dade county. The exposure of the Florida domestics varies in both quantity and quality of exposure. HCI Group (NYSE:HCI) and Universal Insurance Holdings (NYSEMKT:UVE) have the highest exposure in the projected area of landfall.
The table below shows the insurers exposure to the Tri-county area, which is Miami-Dade, Broward and Palm Beach counties. They are heavily populated with coastal building and the most hurricane prone areas in the state.
1Q17 Tri-county Exposure
The percentages shown are the company's percentage of policies and percentage of total insured value in the zone. 39% of HCI's policies and 40.1% of the company's total insured value is located in the Tri-county area.
TIV/Policies is a very rough measure of value of the structures insured. Generally, we would like to see higher value structures, as it suggests newer, higher quality structures. Not surprisingly, UVE and HCI have the lowest values. In our view, this is indicative of older, lower value insured structures. We have shown this in previous research regarding an HCI wind-only takeout where 84% of the Tri-county structures were built prior to 1989 and 32% prior to 1959. Older low-value structures are more vulnerable to be damaged during hurricanes.
HCI and UVE have the highest exposures to Tri-county policies and insured value. It is not only quantity, but quality as well that sets the two insurers apart. In our view, the low TIV/policies number indicates that they are insuring older, low-value structures - precisely the types of home that suffer most from catastrophic events.
There is still uncertainty in Irma's forecast. However, if the storm makes landfall in the Tri-county area, it is reasonable to expect that both HCI and UVE will suffer proportionally greater losses than the other insurers.
Disclosure: I am/we are short HCI, UVE.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.