James River plunges after disclosing expected Q3 loss; Chubb shares rise

James River Group Holdings Ltd. shares took a tumble after the insurer announced it anticipates reporting a net loss for the third quarter of between $23 million and $26 million.

U.S. equity markets rose to record highs yet again for the week ending Oct. 29, with the S&P 500 climbing 1.33% to 4,605.38. Insurance stocks lagged the broader market as the S&P 500 Insurance index declined 1.52% to 549.77.

James River's recently released projected results include pretax impacts of $5 million in catastrophe losses related to Hurricane Ida, reinstatement premiums of $8.1 million for casualty treaties in the excess and surplus segment and adverse development of $15.1 million related to the casualty reinsurance segment.

Keefe Bruyette & Woods analyst Meyer Shields said the reinstatement reinsurance charge represented a "fairly big hit" that investors likely were not expecting.

"The risk is they're using a lot of reinsurance so maybe it'll cost more next year," Shields said in an interview.

But the bigger issue for James River is probably the adverse reserve development in the casualty reinsurance segment, Shields said. The insurer already has a history of problems with reserving, most notably when it canceled all insurance policies with Rasier LLC, an affiliate of ride-hailing giant Uber Technologies Inc. and James River's largest customer at the time.

Although James River's issues with the casualty reinsurance segment are smaller, Shields said they are "painfully persistent," which has likely made people nervous, especially since it somewhat echoes the Uber situation.

James River landed a spot among the biggest losers of the week, with its shares tumbling 18.22%.

This week was also a busy period of earnings for insurers across several lines of business. Unsurprisingly, third-quarter results have so far confirmed that this is a "very significant" catastrophe loss year, Shields said, but there are different trends emerging as to whether some companies' losses are getting worse or better.

"In some cases they're getting better because pricing has been so strong," the KBW analyst said. "In some cases they're getting worse because last year for a number of lines of business, several lines were just phenomenal."

In the property and casualty space, Chubb Ltd. released third-quarter earnings that showed an increase in profits year over year. CEO Evan Greenberg said the company would significantly reduce its homeowners insurance exposure in wildfire-prone areas of California due to difficulty obtaining sufficient rate increases.

Chubb was among the biggest winners of the week, with its shares rising 3.86%.

Catastrophes, social inflation weigh on reinsurance

In reinsurance, RenaissanceRe Holdings Ltd. this week reported a net loss attributable to shareholders of $450.2 million for the third quarter, with Hurricane Ida, severe flooding in Northwestern Europe and aggregate losses associated with those and other events contributing a $726.8 million net negative impact on net loss attributable to shareholders.

In a recent note, S&P Global Ratings said the outlook remains negative for global reinsurance as the sector generates another year of weak underwriting results in 2021.

During RenaissanceRe's earnings call, CEO Kevin O'Donnell predicted "significant rate increases" will continue in the property and casualty business line, due to the effects of climate change and social inflation, among other loss drivers.

RenaissanceRe's stock ended the week in the red with a loss of 3.94%.

Pandemic mortality woes

Looking at the life business, a pair of big names this week reported elevated mortality levels for younger cohorts in the third quarter.

During Principal Financial Group Inc.'s call, executives said there had been an increased number of COVID-19 deaths among a younger age group and warned that deaths could "skew a little bit higher" over the next few quarters if impacts on the younger population continue due to the insurer's business composition.

Principal Financial shares dropped 3.38% for the week.

The Hartford Financial Services Group Inc. executives said they also saw excess mortality related to COVID-19 in its book of business for individuals under the age of 65. Severities are up 49% on a nine-month basis this year, compared to the same time period last year, CEO Christopher Swift said.

The company also experienced increased mortality from non-COVID-19 factors during the period. Swift said it may indicate a "second-order effect" from the impact of the early days of the pandemic when individuals may not have seen their providers for routine health care such annual physicals and normal screenings.

The Hartford's shares finished down 1.58%.