Hurricane Ivan Buffets Insurance Stocks

"The Florida fund has eased the blow from the first two," says Bill Yankus, an analyst with Fox-Pitt Kelton. "A $20 billion-plus storm would start getting you into a level of concern."

Yankus says he's more concerned about the impact of rising interest rates on the profit margins of insurers than the mounting storm damage.

Given the unpredictability of hurricanes, it's too soon to predict whether Ivan will be the kind of "super catastrophe" risk managers fear. While Frances did serious harm to the Florida coast, killed dozens of people and threw tens of thousands of lives into disarray, the overall damage it caused, roughly $5 billion, is about half what was feared.

Bond rating agencies also say it's too soon to jump to any conclusions about the impact of Ivan on company credit ratings. Moody's Investors Services says the insurance industry is "much better prepared for catastrophic events today than it was when Hurricane Andrew struck." In a report issued earlier this week, Moody's says while it expects many insurers to "experience substantial near-term earnings disruptions," it doesn't foresee lowering any corporate ratings.

Ivan could still be a good thing for the property and casualty industry over the long term because it may provide the impetus for future premium hikes. Most analysts say the industry, even after Charley and Frances, has little room to raise insurance rates because of all the price hikes over the past three years.

But even if the industry's pricing power remains weak after Ivan's departure, some stocks may look cheap given the current selloff.

Jay Gelb, an insurance analyst with Prudential Equity Group, says it's not uncommon for insurance stocks to fall before a hurricane and quickly rise after the storm has passed. Gelb, in a research note, says the poststorm rally comes from the "perception that insurers should be able to raise prices going forward.''

For shrewd investors, then, further selling in the insurance sector could represent a buying opportunity, especially if Ivan turns out to be another Frances.

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