Lower Catastrophes Offer Insurers Third Quarter “Meh,” Reinsurers “Bleh”

Chris Westfall
Chris Westfall

Primary property/casualty insurers should post decent third-quarter earnings given low catastrophe losses, but reinsurers will continue to tread water as a 2012 hard market slips through their hands, according to a report released by JPMorgan Securities.

“While rates will eventually reach a ceiling [for carriers], we are optimistic that rate increases will continue to run in excess of loss trends for the medium term,” the note issued last week said. “That is not the case for reinsurance lines, where we are already seeing signs of rates leveling off.”

Benign to lower than normal weather-related losses in the third quarter should help primary carriers’ bottom line, pushing book value increases to the mid-single digits, the report authored by analysts Matthew Heimermann, Donald Chen and Mei Feng A Zhang states. The only caveat for third-quarter catastrophe losses is U.S. crop insurance, which the analysts argue has a “greater downside risk” for reinsurers than commercial carriers.

“[Despite] higher than consensus loss estimates for crop, our [earnings] estimates are higher than the start of the quarter due to the lack of weather related losses. Not only was tropical storm activity benign with Isaac the lone loss-making storm, but attritional loss activity was also lower than normal (and recent quarters).”

Carriers continued to push prince increases during the quarter, with premium growth accelerating. The report argues that personal lines carriers should report an average of 5.9% premium growth during the period, helped by better growth trends in auto and housing. Commercial line carriers are expected to seen an average of 4.1 percent premium growth based on rate increases and “stable-to-improving” exposures.

Reinsurers, however, are expected to skip any pricing power during the third quarter with the only increases coming from “pass-through from insurance.” The result is an expected 1.7% decrease in premium growth on average for reinsurers for the third quarter.

“[Property] and international writings continue to be the few sources of top line growth for most companies, on average, but growth is limited to companies that have the ability to expand,” the report said. “Although prices are going up, demand is generally stable and rate gains are being negatively impacted by changes in retentions and other program changes.”

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