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‘Frankenstorm’ May Create Headwinds for Insurance ETFs


While the East Coast braces for the perfect storm, exchange traded funds that follow the insurance industry are already taking a hit as investors anticipate billions of dollars in damages.

Hurricane Sandy is heading toward the Mid-Atlantic and Northeast and is expected to merge with a winter storm and artic air in what forecasters are dubbing “Frankenstorm.”

“With the angle that it’s coming in, it’ll just pile up water right up against the shoreline,” Henry Margusity, senior meteorologist with AccuWeather, said in a MarketWatch report. “We’re still trying to assess the surge of water from the storm. There could be flooding up the Hudson River all the way to New York City.”

“There will be school closures, travel will be messed up for days and major airports will be closed,” Margusity added. “This could be a disaster of biblical proportions — a multi-billion-dollar disaster.”

Consequently, insurance company stocks are reeling in anticipation of the severe hit.

“Let’s hope the forecasters are wrong,” Ceres Coalition spokesman Peyton Fleming said in a MSN Money article, “but Hurricane Sandy is sounding very similar to Hurricane Irene a year ago, which hit parts of the country for long durations that were quite unusual.”

Ceres Coalition has stated that the accelerating trend for extreme weather is continuing, which “could undermine some insurers’ ability to manage and, in some cases even survive, future catastrophic, weather-related loss events” and “extreme weather is already causing more businesses and properties to be uninsurable in the private insurance markets, leaving the higher risks and costs to governments, taxpayers and individuals.”

The bleak outlook is pressuring shares of property insurers and financial sectors. Hartford Financial Services (HIG) dropped the most among major property insurers, and other companies like Allstate Corp. (ALL), Chubb Corp. (CB), Travelers Co. (TRV) and American International Group (AIG) were also weaker Friday.

Insurance-related ETFs to watch out for include:

  • SPDR KBW Insurance ETF (KIE) : HIG is 2.5%, TRV is 2.4%, CB is 2.4%.
  • iShares Dow Jones US Insurance Index Fund(IAK) : AIG is 8.9%, TRV is 6.5%, CB is 5.1%, ALL is 4.8%.
  • PowerShares Dynamic Insurance Portfolio (PIC) : ALL is 5.0%, CB is 5.0%, AIG is 4.7%.
  • PowerShares KBW Property & Casualty Insurance Portfolio (KBWP) : TRV is 9.9%, ALL is 7.8%, CB is 7.8%.
  • PowerShares KBW Insurance Portfolio (KBWI) : CB is 8.0%, TRV is 8.0%, ALL is 4.7%.

For more information on insurance funds, visit our insurance category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.