Heavy weather losses forecast for P&C insurers' Q2 2023 earnings season

Most of the largest publicly traded US property and casualty insurers are set to report year-over-year revenue gains in the second quarter, although combined ratios are also expected to worsen, according to an S&P Global Market Intelligence analysis.

An analysis of the 20 largest property and casualty (P&C) and multiline insurers by total assets that trade on major US exchanges found that 17 are predicted by sell-side analysts to record higher revenues year over year, while 13 should see revenues rise sequentially.

American International Group Inc., Old Republic International Corp. and Kemper Corp. are expected to report year-over-year declines in revenues. The companies expected to book sequential declines in revenues are The Allstate Corp., The Progressive Corp., Arch Capital Group Ltd., Cincinnati Financial Corp., Axis Capital Holdings Ltd., Assured Guaranty Ltd. and The Hanover Insurance Group Inc.

Earnings are expected to be more mixed, with 12 carriers projected to post year-over-year improvement and eight expecting sequential improvement.

Allstate and The Travelers Cos. Inc. are both expected to book year-over-year declines in earnings per share, as are The Hartford Financial Services Group Inc., W. R. Berkley Corp. Assurant Inc., American Financial Group Inc., Old Republic and The Hanover.

Insurers expected to record sequential losses in earnings are AIG, Travelers, Allstate, CNA Financial Corp., Arch Capital, Cincinnati Financial Corp., Axis Capital, American Financial, Old Republic, Assured Guaranty and Selective Insurance Group Inc.

Harsh weather ahead

The hot topic in upcoming earnings calls is likely to be heavy weather losses. The issue was the unusual number of events, rather than the severity of storms on the level of a hurricane, compounded by companies seeing their reinsurance attachment points increase, according to Keefe Bruyette & Woods analyst Meyer Shields.

"That means they're keeping more of their risk per event and we had an awful lot of events," Shields said in an interview. "That combination means that catastrophe losses are going to be bad [and] underlying losses will probably also be bad."

Shields said this idea was born out of Progressive's June report, which said the company "incurred catastrophe losses related to severe weather throughout the United States." The insurer reported unfavorable prior accident year development of $137.8 million, while its June combined ratio rose over 10 percentage points to 104.9% from 94.7% a year ago.

The combination of catastrophe losses with underlying losses does not bode well for overall second-quarter results, the analyst said.

"What we're going to see from both the insurance executives and from Wall Street is the assumption that the normal level of catastrophes is actually going to be higher next year than we would have guessed that it would have been," Shields said. The analyst added that it is a month into the Atlantic hurricane season and "forecasters who know their science infinitely better than I do are increasingly pessimistic about what this year will look like."

"We're in the business of socializing risk, and risk is rising," Kinsale Capital Group Inc. President and CEO Michael Kehoe said during a July 18 S&P Global Market Intelligence webinar, pointing specifically to the increase in major hurricanes hitting the US in the past six to eight years.

"Hopefully, we're in for a quiet period for the next few years, but it's been quite expensive for the industry," Kehoe said.

Combined ratios are expected to have deteriorated year over year in the second quarter for most of the largest US publicly traded P&C carriers. Only three of the top 19 companies are projected by Market Intelligence to report improvement in their combined ratios. However, that figure is expected to improve sequentially for nine of the companies in this analysis.

Pricing power persists

The news from the calls on other fronts should be positive, particularly with pricing, which "remains strong," Shields said, noting that the rate increases observed are "generally above loss-cost inflation."

"When we look at results, excluding catastrophes, and we start looking forward, that element is still really positive," Shields said. "I would say that it got much more positive for property, probably stable or a little bit less positive for casualty lines, and much more positive for personal auto. So there is an awful lot of good news."

Wells Fargo analyst Elyse Greenspan also sees pluses for commercial lines, noting the possibility for improved commercial property rates, "combined with good levels of investment income and continued healthy levels of capital return." One negative the analyst recognized is that rates may have peaked in commercial lines other than property.