As Hurricane Irma edges closer to Florida, investors on Wall Street are watching a small insurer with an unusually big commitment to the state.

Universal Insurance Holdings Inc., with a market capitalization dwarfed by industry giants like Allstate Corp. and Travelers Cos., has the largest share in the Florida homeowners industry. It’s one of several lesser-known firms that have grown rapidly in a state that’s among the most vulnerable to Atlantic storms.

Shares of Universal and regional competitors have been volatile this week, a sign that investors are jittery. Irma could show whether the smaller insurers have adequately underwritten risks that bigger companies are avoiding.

Local insurers “would see a sizable share of the loss,” Elyse Greenspan, an analyst at Wells Fargo & Co., said in a note to investors Wednesday, citing companies including Universal, Heritage Insurance Holdings Inc. and Federated National Holding Co. Still, the companies have bought protection against large losses, she wrote.

Michelle Giordano, a senior research analyst at Neuberger Berman, echoed that point. Reinsurers could have “disproportionate exposure” and bear a lot of the claims costs, she said.

Universal gained 70 cents to $19.10 at 1:15 p.m. after sliding 15 percent Tuesday.

Reinsurance Coverage

Arash Soleimani, an analyst at KBW Inc., said it would take a “once-in-a-lifetime” storm to blow a hole in the Florida companies’ finances, given the backstops they have from reinsurers. Even so, the market reaction prompted Fort Lauderdale-based Universal to take the unusual step of outlining its reinsurance coverage in a press release on Tuesday.

Irma’s top winds were 185 miles (300 kilometers) an hour Wednesday, making the system a Category 5, the highest measure on the five-step Saffir Simpson scale as the storm passed over islands in the Caribbean and barreled toward Puerto Rico with Florida in its sights.

“We have a tremendous balance sheet, we have a close to 300-page disaster-recovery plan that we began to implement,” Stephen Donaghy, chief operating officer of Universal, said by phone. “We’re doing everything you would hope we’d be doing if you’re a homeowner in Florida.”

The regional players owe their position in the market partly to a costly spate of hurricanes. Losses from storms in 2004 and 2005 convinced many national carriers like Allstate and State Farm Automobile Insurance Co. to retreat from coastal regions, giving smaller firms an opportunity to gain share. More recently, Florida’s state-run Citizens Property Insurance raised prices in an effort to shrink and reduce the risk to taxpayers.

Wall Street Backing

Universal’s gamble has proved to be profitable. The stock climbed more than seven-fold in the five years ended Dec. 31 as Florida avoided major storms and the company built up capital, benefiting holders including including Cliff Asness’s AQR Capital Management, according to data compiled by Bloomberg. BlackRock Inc. is the firm’s largest shareholder.

At the end of June, one of Universal’s insurance subsidiaries had $351 million of statutory surplus and $2.65 billion in reinsurance coverage. That’s an improvement from a few years ago, when the company’s backstops weren’t so robust, Soleimani said.

The potential risk caught the attention of short sellers in 2015, who argued that Universal would be challenged if a major storm hit Florida. The company responded that no single hurricane event in recorded history would have tested its finances, given its reinsurance program.

Irma, however, is no ordinary storm. Barclays Plc analysts said Tuesday that it could potentially cause as much insured damage as Katrina in 2005, which at $50 billion was the costliest hurricane in U.S. history.

The industry has already been pressured by Hurricane Harvey, which inundated the Texas coastline and left parts of Houston, the fourth-largest U.S.-city, under feet of water. Insurers may face more than $10 billion in claims from that event, according to FBR & Co.

A strike from Irma would be the first time since 1964 that the U.S. was hit by back-to-back storms of Category 3 or more.

The fear of a storm hitting Florida always causes a “huge reaction on the shares” of the state’s main homeowners’ carriers, said Soleimani. It’d take a storm hitting multiple big cities to do the kind of damage that investors fear, he said.

Still, he said, “anything is possible.”