RBC downplays Hurricane Beryl concerns for reinsurance sector

4th Jul 2024 11:25

(Sharecast News) - Stocks in the reinsurance sector have been under pressure over the past week as sentiment is dampened by Hurricane Beryl, a category four to five hurricane that's ripping through the Caribbean - though RBC Capital Markets has downplayed its long-term impact on share prices.

Ahead of second-quarter earnings season which kicks off for the sector at the end of this month, the broker said reinsurers tend to underperform the market in July as hurricane season commences, before outperforming in September to November.

"In every incidence of a major loss, there is a tendency for the market to over-react, followed by a full recovery by nine-month updates (or earlier from peer read-across)," RBC said in a research note.

The broker said that, while it's still early to quantify, losses from Hurricane Beryl should threaten full-year targets for reinsurers.

"That said, this has stoked fears around the ominous forecast on an active season issued in prior months with emergence of a cat-5 this early on. History tells us that the sector typically rebounds back following the sell-off around landfall, and the post-event rate hardening is a positive catalyst," RBC said.

"Arguably a reasonably heavy hurricane season should help stress test the sector's earnings power which could support a re-rating to current multiples which remain depressed, especially after the recent pullback."