Reinsurers were among the hardest hit insurance stocks this week as a number of issues weighed on the sector in the wake of the annual reinsurance conference in Monte Carlo.
Sharp declines for companies such as Everest Re Group Ltd., down 9.87%, Brookfield Asset Management Reinsurance Partners Ltd., off 8.36%, RenaissanceRe Holdings Ltd., lower by 8.27%, and Reinsurance Group of America, Incorporated, off 4.54%, helped drive the S&P 500 Insurance index down 3.91% to 521.28 for the week ending Sept. 23.
The broader markets tumbled to their lowest levels in 2022, falling 4.65% to 3,693.23.
CFRA Research analyst Cathy Seifert said the declines were unusual given that the reinsurance space had been up 8.3% for the year as of Sept. 16. Several factors may have influenced this week's decline.
"There may have been some [Monte Carlo] conference chatter that led people to believe that maybe demand and pricing trends were not going to be as robust as perhaps people thought," Seifert said in an interview. "The second thing is it simply could be a function of some profit taking after a strong year-to-date performance."
Seifert also said the mild Atlantic hurricane season may have raised concerns that pricing for catastrophe-related covers may weaken. RenaissanceRe's share prices react "very strongly, sharply and directly" to changes in catastrophe-loss levels, despite its efforts to reduce its cat exposure, she said.
Florida, Florida, Florida
Another issue sending ripples across the industry is the ongoing turmoil in the Florida property and casualty market.
FedNat Holding Co., down 25.26% this week, looks to be the next domino to fall in the market. Florida's state regulator on Sept. 22 petitioned the Leon County Circuit Court for the appointment of a receiver for FedNat subsidiary FedNat Insurance Co. due to the insurer's inability to accomplish a solvent runoff, according to a regulatory filing. Failures of several primary carriers in Florida may have had an impact on the reinsurance market, Seifert said.
Both supply and demand were concerns in Monte Carlo, which may mean a "hard market" is ahead for some property lines, Matthew Carletti, an analyst for JMP Securities, said in a note.
"Inflation is pushing demand higher, while recent results have led several reinsurers to reduce supply, potentially creating classic hard market conditions in property-exposed lines, particularly in peak zones, such as U.S. wind," the analyst said.
Carletti added that insurance-listed securities managers he has met with believe capital may shrink in the months ahead.
"It is unlikely that capital allocated to the sector will grow in the near term and there is a reasonable likelihood it may shrink, despite 2022 thus far showing strong returns," Carletti said.
Despite the dearth of tropical damage in the Sunshine State so far this year, loss levels could change as the hurricane season goes on.
"[The season is] not over," Seifert said. "We have almost two more months of it. Some of the strongest storms have occurred in October, and the most damaging, so that whole downward trajectory could turn around very quickly."
A pattern change could be days away as forecasters continue to track a tropical depression in the Caribbean that may be headed to South Florida and could develop into a hurricane.
Other Florida-based P&C carriers followed FedNat's steep downward trend, including HCI Group Inc., down 12.83%, Heritage Insurance Holdings Inc., down 16.49%, and United Insurance Holdings Corp., down 17.85%.
