On Friday, as Hurricane Irma was approaching Florida, Universal Insurance Holdings was down 17% of their pre-storm market cap of $720M (down to $600M). They are an insurer with a very large number of policies in Florida. About 41% of their total insured value is in Florida and a significant amount is in lower-valued properties (suggesting older homes and the like). That decline told me the market was anticipating big losses.
There was some talk at work of shorting UVE in anticipation of their pounding by Irma. I took a different approach, looking instead to their reinsurance book and realizing they only retained about $35M of exposure. The rest of the risk was shared with the reinsurance market. I estimated a worst-case hit of $40M based on blowing through to the layers of their reinsurance cover. That meant they were undervalued by about $80M at a bare minimum. I took a guess that they would regain that value post storm, potentially providing a 13% gain post-storm, more if the storm dropped to Category 3, which Florida should be able to take well.
I was in on Friday and out on Monday for a gain of 17.5%.
I am somewhat new to investing and this seemed like a bit of a /r/wallstreetbets play, but I worked for ten years in insurance and felt pretty comfortable I knew what I was doing. So tell me, what did I miss in my analysis, how could I have improved this play, and was this just really stupid or a shrewd move?
Submitted September 11, 2017 at 04:05PM by DrunkenGolfer http://ift.tt/2xggoVq
