What happened

Shares of Universal Insurance Holdings (NYSE:UVE) are trading higher by about 15.5% as of 1:01 p.m. EDT, as investors believe Hurricane Irma-related losses will come in lower than estimated at market close on Friday. The insurance company is most exposed to Florida, where roughly 76% of its total insured value is located, making it a popular stock among investors eager to bet on the financial losses caused by Hurricane Irma.

So what

Universal Insurance Holdings derives the bulk of its premiums from policies attached to personal residences and property in the state of Florida. The table below was derived from its most recent quarterly report.

Location

Percentage of Premiums

Percentage of Total Insured Value

Florida

88.3%

76.3%

Other states

11.7%

23.7%

Data source: Universal Insurance Holdings' 10-Q.

Hurricane Irma took a more westerly path than was expected on Friday, ultimately making landfall west of densely populated Miami, sparing the city from hurricane-force winds. On Sunday morning, the hurricane made landfall as a Category 3 hurricane, with winds up to 129 mph, but by Sunday night, it had weakened to a Category 2 hurricane. On Monday morning, the storm was downgraded to a tropical storm after moving north of Orlando. 

Before making landfall, models suggested that that the storm could have moved into Georgia and the Carolinas with hurricane-force winds intact.

For insurers, wind damage poses the greatest financial risk, as flood damage is generally excluded from homeowners policies like those underwritten by Universal Insurance Holdings. Given that losses tend to grow exponentially with wind speeds, Irma's classification as a tropical storm makes outsize losses less likely as it moves inland. 

Hurricane conditions at shoreline with palm trees

Image source: Getty Images.

Now what

Modeling company AIR Worldwide said on Monday that it expects total insured losses of $20 to $40 billion, down from an estimate of $15 to $50 billion on Friday. FBR Capital Markets analyst Randy Binner estimated that damages could be as low as $10 billion to as high as $30 billion. 

The range of estimates reflects the difficulty in handicapping losses just hours after landfall, but for now it seems as though the worst-case scenario is unlikely to occur.

Jordan Wathen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.