Superstorm Sandy Hits ETFs

Insurance companies are still assessing the damage from Hurricane Sandy nearly three weeks after the superstorm devastated parts of the East Coast, disrupted business and forced the New York Stock Exchange to close for two days.

Catastrophe risk modeling company Eqecat estimates storm damage may reach up to $20 billion in insured losses and $50 billion in economic damage, potentially hurting fourth-quarter profits of property and casualty insurers experiencing a flood of claims.

“The stocks and funds that are the most affected [from the storm] may offer the greatest opportunity,” said Paul Newsome, Sandler O’Neill managing director of equity research.  “Stocks like Allstate will be positioned to earn more off the home insurance business.”

The rush to sell insurance stocks in preparation for Hurricane Sandy pushed prices lower, triggering a fall in exchange traded funds with top holdings in property and casualty insurers.

“Major carriers like Chubb (NYSE:CB), Allstate (NYSE:ALL) and Travelers (NYSE:TRV) are most exposed and have taken their lumps,” said Jamie Cox, Harris Financial Group managing partner. “For Chubb and Travelers, a buying opportunity exists to pick up the shares in the middle of their storm.”

Actively traded insurance funds iShares Dow Jones U.S. Insurance (NYSE:IAK) and SPDR S&P Insurance (NYSE:KIE) are down nearly 5% since the beginning of the month, a sharp reversal from their strong performances over the first 10 months of the year. IAK was up nearly 16% through the end of October while KIE was up 17.6%.

The IAK fund allocates more than half of its assets to property and casualty insurance firms. The fund tracks the Dow Jones U.S. Select Insurance Index and currently holds a basket of 61 stocks. IAK’s top five holdings are AIG (NYSE:AIG), MetLife (NYSE:MET), Travelers (NYSE:TRV), ACE (NYSE:ACE) and Aflac (NYSE:AFL).

The KIE tracks the S&P Insurance Select Industry Index using a modified equal-weight benchmark. Property and casualty insurance firms make up nearly 40% of the fund. KIE’s top holdings are Fidelity, Progressive (NYSE:PGR), Aon (NYSE:AON), Arch Capital Group (NASDAQ:ACGL) and HCC Insurance Holdings (NYSE:HCC).

And property and casualty insurers aren’t the only ways to play Hurricane Sandy. Storm damage is prompting companies nationwide to check whether or not they have appropriate coverage, sparking demand for major insurance brokers.

“The first place to focus is insurance brokers like Aon, Willis Group Holdings (NYSE:WSH) and Marsh & McLennan (NYSE:MMC),” said Justin Wiggs, Stifel Nicolaus equity trader. “The second place to focus on is types of exposure. I would rather own or buy Progressive as people typically take their cars with them when they evacuate were as they can’t take their homes. Also, the losses for PGR will not be nearly as susceptible to 'creep' in the coming quarters.”