Even though many forecasters predicted a high likelihood for major hurricanes, none occurred in the U.S. this year. Since now is the time of year to be thankful, and with December ushering in the end of hurricane season, no companies are happier now than property and casualty reinsurers like Hidden Gems picks Montpelier Re (NYSE: MRH ) and United Fire and Casualty (Nasdaq: UFCS ) , as well as Berkshire Hathaway (NYSE: BRK-B ) and White Mountains (NYSE: WTM ) .
Of course, nobody needs to be reminded of the pains that most insurers went through in 2005, with damages from Hurricanes Katrina, Wilma, and Rita costing them as much as $60 billion. Montpelier alone is expected to pay out nearly a billion dollars due to Katrina.
With 2005 causing so much damage, most of the reinsurers could hardly afford another catastrophic year of natural disasters. Forecasters were predicting at least one major hurricane -- and some as many as six -- to hit the U.S. this year. However, 2006 turned out to be the complete opposite of the record-breaking damages caused in 2005. No hurricanes even made landfall in the United States, so Santa definitely must have had insurance companies on his nice list this year.
After the unprecedented losses incurred in 2005, almost anything would have been better for insurers this year. With 2006 being such a quiet year, insurers had a chance to repair their operations with combined ratios decreasing, book values climbing, and premiums written finally starting to improve. As an example, Montpelier brought itself back from the brink of disaster via share dilutions and has grown book value over 20% year to date as well as improving its combined ratio to 58%.
Will 2007 be as nice to insurers as 2006 was? Researchers at Colorado State University are predicting that there will be three major hurricanes of category 3 or higher in 2007. Of course, insurers are designed and capitalized to withstand the losses that go along with natural disasters like hurricanes, so this level of hurricane activity should be no problem as long as it isn't accompanied by Katrina-like losses.
For more Foolishness:
- Naughty and Nice in 2006
- Disaster Relief for Montpelier
- Getting to Know the Insurance Industry
- Betting on Ernesto
There's a whole world of naughty and nice out there! Take a lookat the rest of the bunch.
Looking for more small-cap stock ideas? Tom Gardner and Bill Mann come up with two each month atHidden Gems. To check out what they've recommended and how they're beating the market, click here.BerkshireHathaway is an Inside Value pick.