Shares of major insurance companies traded mostly higher Wednesday, as Ambac Financial Group Inc. surged on prospects for its new bond insurance business, and damage estimates linked to Hurricane Gustav narrowed.
Shares of Ambac surged after the bond insurer's plans for a new insurance subsidiary were approved by Wisconsin insurance regulators. The move is an important step in the company's effort to recover from the housing crisis and broader credit crunch.
Shares soared $1.72, or 24.5 percent, to $8.79 in afternoon trading. The stock, which a year ago traded at a high of $73.20 and has only begun recovering from its 52-week low of $1.04 this summer, is still down 73 percent for the year to date.
Meanwhile, Gustav, which made landfall in Louisiana on Monday as a Category 2 hurricane, was expected to slowly weaken Wednesday as it moved northwestward into eastern Texas. Gustav was to remain a tropical depression and cause severe local storms, heavy rains and high winds, forecasters said.
Initial insured loss estimates show residential and commercial insurance claims totaling $4 billion to $10 billion, less than had been feared.
Allstate Corp. is among the companies with the most exposure to the affected Gulf Coast region. Shares of the property, casualty and auto insurer rose 25 cents to $45.45 in afternoon trading.
Others with significant exposure to the Gulf region include The Travelers Cos., Chubb Corp., American International Group Inc. and Safeco Corp.
In afternoon trading, Travelers lost 5 cents to $44.40, while Chubb rose 18 cents to $48.16. AIG advanced 29 cents to $22.03, while Safeco added 7 cents to $67.84. Shares hit a new 52-week high of $68.07 earlier in the session.
Hartford Financial Services Group Inc. and Progressive Corp. also have significant market share in the region, but Progressive's exposure is predominantly from auto insurance, which doesn't tend to be impacted by storms as much as home insurance.
However, Friedman, Billings Ramsey analyst Bijan Moazami said in a note to investors Thursday that Progressive and Hartford Financial have some of the greatest exposure to Fannie Mae and Freddie Mac preferred stock.
He estimates Progressive could suffer a 1.5 percent to 6.2 percent aftertax loss and Hartford could suffer a 0.5 percent to 2.1 percent loss related to Fannie and Freddie marking down the value of those investments if a government bailout of the troubled mortgage financiers was to take place.
Hartford Financial shares fell 67 cents to $63.68. Shares have traded between $53.20 and $99.21 in the past 12 months. Progressive shares were flat at $18.49.
Insurance companies could face another financial hit as Tropical Storm Hanna spins in the Atlantic. Hanna is expected to remain a tropical storm throughout Wednesday as it moves northwestward, but could strengthen to a Category 1 hurricane later in the week, as it moves closer to Florida.
Terms & Conditions
RSS Headlines
Fool UK