US property and casualty insurers' earnings ride on management of personal auto

Most of the largest publicly traded US property and casualty insurers are set to book sequential and year-over-year increases in revenues in the first quarter, according to an S&P Global Market Intelligence examination of sell-side analyst forecasts.

An analysis of the 20 largest property and casualty (P&C) and multiline insurers by total assets traded on major US exchanges found that 15 are predicted to record higher revenues year over year, while 11 should see revenues rise sequentially.

American International Group Inc., Kemper Corp., Old Republic International Corp. and Assured Guaranty Ltd. are expected to report year-over-year declines in revenues. AXIS Capital Holdings Ltd.'s revenues are forecast to be flat.

Earnings are expected to be slightly more mixed, with 10 carriers projected to post year-over-year improvement and 13 expecting sequential improvement.

Both The Allstate Corp. and The Travelers Cos. Inc. are expected to record year-over-year declines in EPS, as are Assured Guaranty, Old Republic, AXIS Capital, Assurant Inc., Cincinnati Financial Corp., American Financial Group Inc., The Hanover Insurance Group Inc. and Horace Mann Educators Corp.

Pressure from personal auto

While there may be strength in other lines of business, the key to a healthy industry is personal auto, according to CFRA Research analyst Cathy Seifert.

"If you look at the overall industry, it's going to live and die by how profitably [insurers] can write personal auto insurance, and that's a real challenge right now," Seifert said in an interview.

Seifert said a glimpse of what lies ahead for those insurers showed up in Progressive Corp.'s March results. Claim cost inflation "continues to be just incredibly high," and the insurer's lost costs surged 20%, the analyst said.

Allstate will also be getting some hard looks. The insurer is coming off a 2022 fourth quarter in which it had an underwriting loss of $974 million and a combined ratio of 112.6% in the personal auto segment.

Personal auto writers may be at the point where they will need to take a "deep dive" into their underwriting models and examine how they are pricing and writing that business, Seifert said.

The combination of costlier new and technology-driven vehicles and aggressive driving behavior have led to "fender-bender" claims becoming extremely costly, Seifert said. The analyst is not convinced auto insurers have kept up with vehicle technological and design changes.

"There's a game of catch-up that may have to be played among the insurers," Seifert said. "And that's just really going to mean one thing: It's going to be more expensive to insure a car."

Commercial outlook

Seifert said the commercial space for P&C carriers is "holding reasonably well" after almost four years of price increases. The issue that investors and analysts will be watching is the possible fallout from tightening lending standards.

Investors "across the board" will want to know the appetite and demand for coverage for all commercial lines, Seifert said.

UBS analyst Brian Meredith in a research note said he has a positive view on commercial lines insurers heading into the first-quarter earnings season. Premium growth and underlying underwriting margins could be better than expected, particularly for companies that grew commercial property exposure, Meredith said.

"Pricing in most commercial lines of insurance continues to be in line with or in excess of loss cost inflation, which should drive stable-to-improving underlying margins," Meredith said.