FT : Hurricane Ian a wake-up call for insurers as losses forecast to hit $75bn

Hurricane Ian a wake-up call for insurers as losses forecast to hit $75bn
Cost of storm that hit Florida expected to prompt insurers to lift premiums and rethink coverage

Hurricane Ian is set to become the most significant natural disaster for the insurance sector in decades after it swept through Florida and South Carolina, industry figures have warned.

Initial forecasts for the industry’s losses from the storm have reached as high as $75bn, which would make it the costliest natural disaster ever in nominal terms. In real terms, only 2005’s Hurricane Katrina, which generated insured losses of $65bn —$99bn in 2022 money — has inflicted greater losses.

Ian hit Florida’s west coast on September 28 near the town of Fort Myers as a Category 4 storm, crossed the state to the Atlantic and then went on to hit South Carolina on September 30. At least 127 people died in Florida alone.

RMS, a US-based risk modelling company, estimates the losses from Ian to private insurers at between $53bn and $74bn. Stonybrook Capital, a US investment bank, has estimated total costs for the industry at $75bn.

Billions of dollars of other losses will be borne by the US federal government’s National Flood Insurance Program and the state of Florida’s Citizens Property Insurance Corporation.

“With respect to other events, Ian has to be up there in scale of loss — comparable to Katrina if not, when all is said and done, even larger than Katrina,” said Julie Serakos, head of modelling for RMS.

Industry executives, risk modellers and analysts all expect that the storm would cement a recent shift by insurers towards levying higher premiums and avoiding some acute risks — such as Florida property — altogether.

Michael Rouse, US property practice lead for Marsh, one of the world’s biggest insurance brokers, said that since July he had detected “a little bit of a change” in the terms it could secure on behalf of its customers seeking cover in markets such as Florida. Market observers say premiums are rising and the number of companies offering coverage declining

“I think with the impact of Ian we’re starting to potentially see some further deterioration for our customers within that marketplace,” Rouse said of Florida.

Serakos compared Ian’s effect on market sentiment with that of 1992’s Hurricane Andrew. That storm was the first to alert the insurance industry to the scale of its exposure to devastating storms on the US’s Atlantic coast.

The industry had tried to make preparations to cope with a new catastrophic loss on the scale of Andrew, she said. That process has been particularly important because climate change appears to be exacerbating the severity of storms.

“What Ian is going to do is really test that system,” she said.

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The fallout from Ian comes just as the industry was already grappling with several headwinds, including losses stemming from the war in Ukraine and billions of dollars of claims for losses resulting from the coronavirus pandemic. At the same time, higher inflation has driven up the cost of meeting many claims.

Meanwhile, losses from the storm are likely to push a further series of small, local insurers in Florida into insolvency, in a market where six have already been forced to seek protection from creditors this year.

Patrick Davison, underwriting director at Lloyd’s Market Association, which represents members of London’s Lloyd’s insurance market, said there were “clear opportunities” for the best-performing insurers in what he called a “tough catastrophe environment”.

“Market conditions, and particularly significant reductions in the capacity available to write catastrophe-exposed business, clearly present challenges for some insurers and reinsurers, particularly smaller and underperforming players,” he said.

FT : Fox/News Corp: merger maths line up for the man in a rush

Fox/News Corp: merger maths line up for the man in a rush
Rupert Murdoch’s thirst for dealmaking appears to be strong as ever

At 91, Rupert Murdoch’s thirst for blockbuster dealmaking appears to be strong as ever. The media mogul is seeking to reunite the two pieces of his empire, Fox and News Corp. He separated them a decade ago and subsequently vowed he would never reunify them.

But the world has changed. Fox sold much of its film and entertainment business to Disney in 2019, choosing to eschew the internecine streaming wars. Fox then focused on live content in TV sports and news, which it saw as attractive segments of the media business.

With a global economic storm gathering, there is safety in scale again. The Murdoch family knows that News Corp’s print and digital properties are particularly vulnerable due to their reliance on advertising. Time is of the essence because of the patriarch’s advancing age. The financials stack up too.

Fox and News Corp have market capitalisations of $17bn and $9bn respectively. Murdoch is seeking an all-share merger, typically executed with little to no premium. Each set of shareholders would only benefit if cost savings or revenue improvements can be achieved.

Shares in News Corp are down 30 per cent so far in 2022, about double the drop suffered by Fox. The relative value of News Corp shares compared with Fox stock, based on the daily trading prices of each, has drifted down from 0.60 times to 0.49 times from January to today.

News Corp trades at a ratio of about 6.5 times 2023 estimated ebitda to enterprise value, while Fox is just under 6 times. If the pair merged at their market values, Fox shareholders would own two-thirds of the combined company.

Such a split is reasonable or slightly generous to News Corp shareholders, even though the performance of News Corp shares this year has hurt the market-based exchange ratio. Based on the respective contributions of 2023 ebitda the pair might make to the new company, adjusted for net debt of each, Fox shareholders could expect to ask for just a shade above the two-thirds of the equity that the current trading prices imply.

It is a fortunate turn of timing that the empirical and theoretical valuations intersect for a man who is probably in a rush to get things done.

>>> Barron’s Week-end Summary

Barron’s Weekend Summary: For decades, California has leveraged its natural charms and dynamic economy to lure ambitious people

Cover Story:
-Barron’s tributes California. For decades, California has leveraged its natural charms and dynamic economy to lure ambitious people. Technology, aerospace, and cultural leadership—be it movies, music, or the ethos of marijuana and West Coast fashion—all set the state apart. From Silicon Valley to Hollywood, California maintains economic advantages that rival states may never match.

Interview:
-Robert Dietz, chief economist for the National Association of Home Builders, has been traveling the nation in recent weeks, offering his insights to policy makers, trade associations, and industry-conference attendees from Ohio to Alaska. Dietz leads a team of a dozen economists overseeing the trade group’s forecasts, policy research, and surveys, including the closely watched NAHB/Wells Fargo Housing Market Index, or HMI, which gauges home-builder sentiment and sales expectations each month.
Dietz recently spoke with Barron’s about the outlook for home construction, prices, and affordability, and regional sales trends. An edited version of the conversation follows.

Tech Trader:
-Oracle is using the cloud to drive new growth in the company’s application and database software businesses, while also moving to take on the three giants in the public cloud— Amazon.com or Microsoft, and Alphabet through its Google Cloud. Oracle is getting traction on all fronts, and it’s driving growth rates the company hasn’t seen in more than a decade. By mid-December of last year, the stock had rallied 70%, briefly eclipsing $100 a share. But Oracle shares have since round-tripped back to the low 60s. The stock hasn’t been immune to the market selloff. But there is a more specific issue, too.

The Trader:
-Companies like Nike and Micron Technology have flagged inventory issues in recent weeks, while even used cars are getting easier to find. Too few morphed into too much, and now goods prices are falling as companies are forced to discount what they have to move it off the shelves. In an otherwise hot inflation report this past week, both apparel prices and used-car prices declined. The oversupply is partly a response to supply chains finally getting back to something closer to normal.
-Investors seemingly can’t stop trying to pick a stock market bottom, no matter how bad the news—and it continues to backfire. The day for a real bounce, however, may be coming soon. This past Thursday, September’s consumer inflation report came in much hotter than expected, with the core CPI hitting a 40-year high. The initial response was exactly what you’d expect—the S&P 500 traded down as much as 2.4%—but then it started rallying…and rallying. The index finally finished the day up 2.6%, the first time that’s happened since 2008.

Features:
-This week’s worse-than-expected inflation report led to turmoil in more than one market, but you only read about one of them. The market that got all the headlines was in stocks, since in the wake of the latest news about inflation the equity market experienced one of its biggest intraday swings in history. After plunging more than 500 points right after the report was released, the Dow Jones Industrial Average rose more than 1,300 points to close up more than 800 points.
-The Biden administration wants credit for the huge 2023 hike in Social Security benefits, announced Thursday, as well as the planned cut in Medicare Part B premiums. “For the first time in over a decade, seniors’ Medicare premiums will decrease even as their Social Security checks increase,” said press secretary Karine Jean-Pierre in a statement on Wednesday. “This means that seniors will have a chance to get ahead of inflation, due to the rare combination of rising benefits and falling premiums. We will put more money in their pockets and provide them with a little extra breathing room.” However, the 2023 Social Security benefit hike is nothing more than a cost-of-living adjustment to try to keep up with inflation, not get ahead of it. The real terms “increase” in benefits is precisely zero.

European Trader:
-UK Chancellor of the Exchequer Kwasi Kwarteng has been fired over his handling of a recent economic crisis that saw bond markets crash.

He left an International Monetary Fund gathering in Washington earlier than planned and was promptly relieved of his position in a meeting with Prime Minister Liz Truss when he arrived back, making him the second-shortest serving Treasury chief in UK history. Truss named former Foreign Secretary Jeremy Hunt as his replacement on Friday. Kwarteng’s dramatic departure leaves the British government in dire straits. He and Truss came to power on the back of promises to cut taxes and shrink the size of the state.

Emerging Markets:
-Limited and manageable. That’s how Taiwan Semiconductor Manufacturing CEO C.C. Wei assessed the fallout for his company from sweeping new US government restrictions on chip sales to China. Wei’s typically terse comment came while announcing third-quarter earnings this week. Markets aren’t so sanguine. Taiwan Semi shares have slumped by 11% since President Joe Biden’s Commerce Department unveiled its broadside Oct. 7. That’s in line with the Philadelphia Semiconductor Index, which charts the industry globally.

Commodities:
-The world needs metals like copper, iron, and cobalt, but investors don’t seem to need mining stocks. They should reconsider. Investor reluctance is understandable. Why get exposure to an industry whose profits hinge on the health of industrial activity when the global economy seems headed for a downturn that would probably send metal prices lower? Yet a case can be made for many resource companies. They have robust balance sheets with little or no net debt, still-solid earnings, ample reserves, and reasonably good dividends. That’s a good setup for diversified miners BHP, Rio Tinto, Glencore, and Anglo American; copper producer Freeport-McMoRan; aluminum maker Alcoa; and gold miners Barrick Gold and Newmont.

Streetwise:
-Jack Hough looks at airline stocks: Some airline stocks trade at five times projected earnings. Why so expensive, you might be wondering. The group’s reputation on capital preservation at the moment ranks somewhere between damaged and UK pension manager. An index of US airlines is down 42% in a year, more than double the beating absorbed by the broad US market. “They historically disappoint because they buy aircraft at the top of the market and take delivery in a recession or at the bottom of the market,” says Cowen analyst Helane Baker. “And this time they can’t do that because they can’t get the planes and they don’t have the people.” Baker is selectively bullish about the airline sector, which she concedes is not a favorite group for investors. This past week she upgraded Delta Air Lines to Outperform after its third-quarter report showed record revenue. She predicts 75% upside there. Her other picks include United Airlines, Sun Country Airlines and Alaska Air Group.

>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-An analysis of witness testimony and videos reveals a bloody scene in which dozens were killed at a worship area where Friday Prayer had been underway in the ethnic Baluch region on Sept. 30. It represents the most lethal Iranian government action since nationwide unrest began last month.
-The UK fallout, offers lessons for a world facing harsh economic realities.
The sharp policy U-turn by Prime Minister Liz Truss reveals the perils of taking the wrong path in the fight against inflation.
-For Liz Truss and the Tories, a ‘Fairy Tale’ has unraveled. Having abandoned her signature economic plan for Britain, it remains unclear whether Prime Minister Liz Truss or her party can reclaim a mandate.
-US asks court to end special master review of files seized from Trump.
The Justice Department told an appeals court that a judge was wrong to intervene in its inquiry into former President Trump’s hoarding of sensitive records.
-In a rambling, 14-page “restatement of false claims and conspiracy theories”, former President Trump did not indicate whether he would testify before the House panel investigating the Capitol riot.
-Despite its barrage of missiles, Russia still loses ground in Ukraine. “They use their expensive rockets for nothing, just to frighten people,” said a member of Ukraine’s Parliament of Russia’s attacks.
-Belarus wavers as Putin presses it to join Ukraine war. Belarus’s President Aleksandr Lukashenko, survives with support from Vladimir Putin, but entering the fight could be “political suicide.”
-Herschel Walker and Raphael Warnock Grapple over abortion and the economy. The rivals in a heated Senate race in Georgia clashed in a debate that was heavy on policy and light on issues of character.
-The Senate isn’t what it used to be, our correspondent writes, as more veteran lawmakers throw in the towel and leave.
-A 15-year-old boy was in custody as investigators searched for a motive in a shooting rampage that killed five people in Raleigh, NC.
-Remarks about Oaxacans from the Los Angeles City Council president shocked the city. But they highlighted a history of racism within the Latino community.
-Residents struggled with the killing of two members of the Connecticut town’s police force in an outburst of violence that left many questions unanswered.
-Founder Trevor Milton was accused of boasting about nonexistent technology to inflate the stock price of Nikola, a maker of electric trucks.
-What the $24.6B Kroger-Albertsons merger could mean for groceries. Two of the largest US supermarket chains hope to join forces as inflation pushes food prices higher and as Amazon and Walmart become more powerful.
-Alaska cancels snow crab season amid population declines. Biologists say the warming of the waters of the Bering Sea in recent years is a possible factor in the decline of snow crabs.

THE FINANCIAL TIMES
-Liz Truss sacked her chancellor Kwasi Kwarteng and shredded her economic strategy on Friday, but her effort to salvage her premiership failed to win over financial markets and left Conservative MPs in a state of mutiny.
In a Downing Street press conference lasting less than 10 minutes, Truss named Jeremy Hunt, former foreign secretary, as her new chancellor and backtracked on her promise to avoid an £18B corporation tax rise.
-You would not know it from this week’s results at LVMH, owner of Louis Vuitton and Christian Dior. Revenues at the world’s largest luxury and fashion group rose by 19 per cent in the third quarter of this year as American tourists flocked to Europe bearing strong dollars to snap up Vuitton and Loewe leather bags, Dior clothes and Tiffany jewelry.
-Just over a month after she took office promising a new radical, tax-cutting Conservative government, British Prime Minister Liz Truss now faces political ruin, her signature economic policy rejected by markets, voters and her own MPs.
Ominously, Sir John Curtice, a leading pollster, says Truss is now as unpopular as former premier John Major was in the aftermath of the Black Wednesday currency crisis, the Conservative party’s last encounter with economic disaster in 1992. It took the Tories 18 years to win another election.
-The head of the Federal Reserve’s Atlanta branch violated the US central bank’s trading rules and restrictions, the regional bank’s board disclosed on Friday, reigniting one of the worst reputational crises in the institution’s history. Transactions were found to have been made on behalf on Raphael Bostic, who has served as president of the Atlanta Fed since 2017, during the blackout period when trading activity is prohibited ahead of meetings where monetary policy is set.
-Beijing’s daily dispatch of fighters, drones and warships towards Taiwan is stoking suspicion that Xi Jinping intends to seize the country by force.
So when China’s president kicks off the 20th Communist party congress on Sunday, nothing will be more closely scrutinized than what he says about the island.
-Rupert Murdoch wants to merge Fox with News Corp: a deal that would reunite the television group behind the Fox News cable channel with the owner of newspapers including The Wall Street Journal. The 91-year-old media mogul has proposed the combination of the two companies in an all-stock deal, in a move to gain scale in a cut-throat and consolidating media landscape.
-As the battle against Russia enters its eighth month following Moscow’s full-scale invasion in February, Ukraine’s military appears to have conquered Twitter with an effective mix of posts that blend humor and tragedy. The aim is to “win hearts and minds” across the globe and keep international allies onside.
-Russian President Vladimir Putin has said Russia’s mobilization drive to bolster its forces fighting in its faltering invasion of Ukraine will end within two weeks but defended the army from criticism of the draft. Russia’s president on Friday said about 220,000 men had been drafted into the army since he called up reserves and moved to annex four occupied regions of south-eastern Ukraine. He said this was a sufficient effort to bolster forces on the battlefield.
-The Pentagon is in talks with Elon Musk’s Starlink mobile internet system to keep connectivity for Ukrainian forces, after the billionaire Tesla chief complained he was burning through nearly $20M a month funding the service.
-Kroger has agreed to acquire rival Albertsons for $24.6B in a deal that would create one of the US’s largest grocery store chains if it can overcome significant antitrust hurdles.
-JPMorgan Chase reported a 17% year-on-year drop in quarterly net income, a smaller decline than analysts had anticipated as record income from lending helped offset the continued slowdown in investment banking and a $1.5B provision to cover bad credit.
-US prosecutors subpoenaed Celsius Network just days after the now-bankrupt crypto lender froze customer withdrawals in June in one of a range of federal inquiries surrounding the company.
-In one of the bleakest meetings of the IMF and World Bank since the financial crisis, Sri Mulyani Indrawati, Indonesia’s finance minister and chair of the Group of 20 leading economies, summed up the mood. “The global economic situation has become more and more challenging,” she said in her closing remarks to the gathering of finance ministers and central bank governors in Washington, DC on Thursday. “The world is in a dangerous situation.”
-As a result, he stands alone at the top of Chinese politics in a way that no other “paramount leader” has done since the party’s revolutionary hero, Mao Zedong. Even Deng Xiaoping, a veteran of Mao’s revolution and architect of China’s economic miracle, had to contend with powerful peers who were skeptical of his reform program.
-Strikes by oil refinery workers demanding higher wages, led by the hard-left CGT union, have become a major test for the French government as it grapples with the fallout from Europe’s energy crisis caused by Russia’s invasion of Ukraine.
The walkouts at some TotalEnergies and ExxonMobil sites left a third of petrol stations reporting shortages, forcing France to buy expensive diesel imports, while the state’s efforts to blunt the effect of soaring energy prices with fuel subsidies caused runs on some petrol stations.
-Germany’s deputy chancellor has hit out at critics of the €200B energy support package Berlin unveiled last month, denying it was “selfish” and insisting it will help protect the whole European economy.
-The field of bidders vying to buy Toshiba in what would be Japan’s biggest ever buyout has narrowed to two frontrunners, one consortium led by US private equity group Bain Capital and another spearheaded by a Japanese domestic fund, according to three people familiar with the matter.

NY POST
-More than 40 immigrants who were flown to Martha’s Vineyard by Florida’s Republican Gov. Ron DeSantis last month may receive special visas after a Texas sheriff certified them as victims of crime, The Post has learned.
Sheriff Javier Salazar of Democratically administered Bexar County certified the migrants as victims of “unlawful criminal restraint,” which gives them legal grounding to apply for a special “U visa” to stay in the country and then apply for permanent residency and citizenship.
-Jamie Dimon told clients this week that “some investors don’t give a %$#t” about “ESG,” the woke investing approach that US companies increasingly have embraced under political pressure, sources told The Post. The JPMorgan CEO emphasized the importance of conventional energy sources as the nation invests in green energy, telling attendees at a company “fireside chat” that “pumping more oil and gas and using energy security” is critical for the US to maintain its financial stability and independence, according to a source briefed on the comments.

FT : Bain and JIP consortiums emerge as frontrunners to buy Toshiba

Bain and JIP consortiums emerge as frontrunners to buy Toshiba
A deal for the 146-year-old conglomerate would be the biggest buyout in Japanese corporate history

The field of bidders vying to buy Toshiba in what would be Japan’s biggest ever buyout has narrowed to two frontrunners, one consortium led by US private equity group Bain Capital and another spearheaded by a Japanese domestic fund, according to three people familiar with the matter.

The sale of the 146-year-old industrial conglomerate has been subject to an extensive due diligence process in a round of bids that began in the spring and is expected to last through November. A deal for Toshiba could value one of Japan’s best known companies at as much as $22bn.

Private equity group Japan Industrial Partners, which has previously acquired assets from Sony and Olympus, has been given a preferred status in the second round of bidding but has not signed an exclusivity agreement, two of the people said. 

Alongside the groups led by Bain and JIP, US private equity group Brookfield and European buyout firm CVC, whose original $20bn approach for Toshiba in 2021, forced the resignation of its then president and triggered the current bidding war, also made it to the second round.

Toshiba has evolved into a sprawling collection of subsidiaries and non-core assets, some of which have been listed separately, but many of which remain as potential targets for future sell-offs. The due diligence process has provided bidders with vast collections of data and factory access normally off-limits to investors.

The progression of the sale process has given the second-round bidders an unprecedented level of access to one of Japan’s most complex business groups.

JIP is in talks with an array of Japanese companies including Chubu Electric and financial services group Orix, as well as private equity groups, but the members of its consortium and financing details have not yet been finalised, according to those people.

Another person with direct knowledge of the talks questioned whether the consortium led by JIP would be able to offer the most competitive pricing. 

JIP declined to comment. Orix said it was considering an investment in Toshiba but added that no decision has been reached. Chubu Electric said it signed a nondisclosure agreement with Toshiba and another investment fund it declined to name. 

JIP had initially partnered with Japan Investment Corp, an investment fund backed by the Japanese government, in the first round of bidding. But the two have since parted ways, with JIC now in talks with Bain Capital, which had been considered the frontrunner in the bidding battle.

JIC and Bain declined to comment.

In a statement, Toshiba declined to comment on the bidders, saying it could “undermine fair process”.