US P&C insurers could be in line for good Q2 commercial lines results

The commercial lines business could be a point of emphasis for U.S. property and casualty insurers as they report second-quarter earnings.

Most U.S. P&C insurers are forecast to log year-over-year EPS growth, although sequential comparisons could be mixed, according to an S&P Global Market Intelligence analysis.

Sell-side analysts generally expect P&C insurers to record good results in commercial lines for a number of metrics, thanks to rising premium rates.

Keefe Bruyette & Woods analyst Meyer Shields projects commercial underwriters' core combined ratios will improve, saying that most commercial lines rate increases in the second quarter slowed sequentially but remain above loss trends. Deceleration is likely in the second half as individual lines pricing approaches adequacy, he said. Specialty commercial rate increases should stay above standard commercial lines, Shields added.

Wells Fargo analyst Elyse Greenspan expects commercial lines insurers to continue to see underlying margin improvement, and point to a still-strong pricing environment. Piper Sandler analyst Paul Newsome in a research note said the commercial insurance hard market "is here and seems to be sustaining itself."

Personal lines and workers' compensation could also be topical as the U.S. economy returns to more normal options. Greenspan wrote that personal lines insurers should be pressured as driving picks up as more people get vaccinated.

Core loss ratios could rise "significantly" year over year owing to a combination of normalizing driving patterns, possibly temporary loss-cost inflation spikes and "flat-to-down" earned rate levels, Shields said. Most insurers are likely to keep cutting rates modestly through the end of the year, and personal property rates could rise owing to building materials inflation, moderately rising reinsurance costs and climate change concerns.

As for workers' comp, Shields foresees rates rising "modestly" in the second quarter and — sans sharply rising loss trends — in the second half, while Newsome said the largest single line of commercial insurance has gone to slightly higher prices from flat and price decreases before that.

American International Group Inc. CEO Peter Zaffino on a recent call said AIG was watching workers' comp "carefully" as more people return to work. The CEO noted that AIG's workers' comp portfolio is largely in large accounts, and that more than 70% of these accounts have very large deductibles or retentions.

"So that increase in frequency and increase in workers' [comp] that could be escalated will largely be retained by our clients and something that should not impact AIG going forward," Zaffino said.

All three analysts do not expect catastrophe losses to make a significant dent on insurer earnings, with Greenspan estimating insured cat losses of under $8 billion, the majority in the U.S.