What’s rattling Universal Insurance Holdings, Inc. (NYSE:UVE) stock? It has something to do with growing investor fears about the losses the insurer is likely to suffer because of Hurricane Matthew which is now striking the eastern Florida coast and neighboring states. But UVE says there is no cause for alarm as it feels everything is under control.
In a press release, Universal Insurance Holdings, Inc. (NYSE:UVE) detailed how its business has been hedged against the hurricane risk and that losses would not be as severe as some expect. Specifically, UVE said that its operating subsidiaries have reinsurance coverage that will limit their losses stemming from the destruction caused by the hurricane.
Reinsurance program to absorb outsize losses
According to UVE the reinsurance coverage that its subsidiaries American Platinum Property and Casualty Insurance Company (APPCIC) and Universal Property & Casualty Insurance Company (UPCIC) have taken will protect them from outsize losses due to the hurricane.
For instance, in Florida, Universal said the reinsurance program limits its loss per catastrophic event to $35 million, but up to a total loss of $2.4 billion. Losses in the states outside Florida will be limited to $5 million per event.
Category 4 storm
Florida is bracing for a category 4 hurricane whose devastating impact could be felt in neighboring states such as South Carolina, Alabama and Georgia.
Because UVE covers many homeowners in Florida and the neighboring states, investors fear that the insurer will bear the brunt of Hurricane Matthew when it strikes homes in the states. UVE doesn’t see it that way.
Worries over the impact UVE is likely to suffer because of the storm are heightened by the fact that most of the premiums the company received in the first half of 2016 came from Florida. The company said Florida contributed 91.4% of its written premiums in 1H2016.
Universal Insurance Holdings’s clarification on the reinsurance measure was meant to calm investors ahead of Hurricane Matthew. But it did little because UVE stock fell 12.24% to $19.51 in the last session. But appetite for the stock seemed to have returned during after-hours trading, leading to a 1.08% gain.