Why Shares of Universal Insurance Holdings, Inc. are Dropping Today

By Markets Fool.com

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What's happening?

Shares of Universal Insurance Holdings, Inc. (NYSE: UVE) are down about 12% as of 3:20 p.m. EDT as investors try to handicap the insurer's potential losses from Hurricane Matthew.

So what?

Universal Insurance Holdings would logically be one of the insurance companies most affected by any hurricane-related losses. The company reported that 91.4% of its written premiums in the first six months of 2016 were from insurance written in Florida.On Thursday, the outer bands of Hurricane Matthew strengthened to a Category 4 storm.

Ahead of the hurricane's landfall, the company put out a press release presumably aimed at calming investors' concerns, noting that its subsidiary has reinsurance that would protect it from outsize losses. Reinsurance would limit its loss to $35 million per catastrophic event in Florida, up to total losses of $2.4 billion. Outside the state of Florida, losses could be as low as $5 million per state thanks to additional coverage.

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Now what?

Even a $35 million loss would be significant for Universal Insurance Holdings, which reported shareholders' equity of $351 million at the end of the second quarter. In a press release, it also noted that its Universal Property & Casualty Insurance Company subsidiary had a statutory surplus of just $294 million.

For Universal Insurance Holdings, the question is just how bad Hurricane Matthew will be, and whether it will create costly damages in other nearby states, including Alabama, Georgia, and South Carolina, where the company also writes homeowners insurance policies. Selling pressure is likely being exacerbated by the likelihood of Hurricane Matthew to strike Florida tonight, ahead of the market open on Friday, prompting investors to cut their risks overnight.

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Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.