Hurricane Helene fallout to dominate US P&C insurers' Q3 earnings calls

The fallout from Hurricane Helene will be front-and-center for investors and analysts as US property and casualty insurers prepare to release their third-quarter financial results.

The storm's Sept. 26 landfall as a Category 4 storm on Florida's Big Bend coast marked the start of a destructive trek into Georgia and South Carolina that also devastated eastern Tennessee and most of western North Carolina. Torrential rain from the storm triggered massive flooding that spawned between $8 billion and $14 billion in insured losses and caused at least 251 deaths.

Losses from the storm were "sizable," but were not large enough to endanger companies or change the industry," said Keefe Bruyette and Woods analyst Meyer Shields. However, that will not prevent companies from discussing the event and its future impact on their calls, the first of which will be The Travelers Cos. Inc. at 9 a.m. ET on Oct. 17.

"A big part of it will simply be people talking about hurricane losses," Shields said in an interview. "As for the end of October and early November, some companies will have more insight than others in terms of ... their exposure."

The devastation wrought by the more recent Hurricane Milton will also be discussed, even though the losses from that event will be applied in the fourth quarter.

Ratios rise annually, sequentially

An S&P Global Market Intelligence analysis found that sell-side analysts expect combined ratios to rise year over year and sequentially for 8 of the 17 largest publicly traded US property and casualty (P&C) and multiline insurers. However, none of the insurers in the analysis had a combined ratio over 100%, signifying a lack of underwriting losses.

Four insurers are expected to record combined ratios above 97%: The Allstate Corp. at 97.57%, Selective Insurance Group Inc. at 97.4%, Markel Group Inc. at 97.38% and The Hanover Insurance Group Inc. at 97.4%.

Arch Capital Group Ltd. and The Progressive Corp. had the lowest ratios in the analysis at 86.60% and 88.35%, respectively. Chubb Ltd., at 90.34%, was third, followed by W. R. Berkley Corp. at 91.32% and American Financial Group Inc., at 93.03%.

Progressive reported $563 million in catastrophe losses related to Helene, most of which occurred in the southeastern US. Of those losses, $401 million were vehicle losses, including boats and recreational vehicles, while $162 million were related to the insurer's property business.

Allstate reported pretax catastrophe losses of $542 million in July and $272 million in August. The Northbrook, Illinois-based carrier cited 20 events in July, including an estimated $226 million from Hurricane Beryl, and 15 events in August.

Despite the heavy cat losses, UBS analyst Brian Meredith called out Allstate as one of his "top picks" going into earnings season. Meredith said in a research note that he anticipates "a potential sequential improvement in personal auto policies-in-force in the quarter" because of "new business increases and retentions starting to stabilize."

"Underlying loss ratios will continue to be very strong and could beat consensus expectations as well," Meredith said.

EPS up YOY for majority

Sell-siders anticipate improvement in normalized earnings per share compared to a year ago for 14 of the 20 companies in the analysis, while only nine are expected to improve from the second quarter.

Markel had the highest EPS in the analysis at $21.29, up from $16.60 a year ago, but down sequentially from $26.23. Chubb was second highest at $5.01, followed by Travelers at $3.69, Progressive at $3.66, Assurant Inc. at $3.26 and Allstate at $3.24, which was a marked improvement from $1.61 last quarter and 81 cents a year ago.

Prior to the arrival of Hurricane Helene, third-quarter earnings looked good overall, Piper Sandler analyst Paul Newsome said in a research note, citing good weather and a stable competitive environment. The analyst expects investors to look at "non-bottom line items" such as pricing commentary, casualty and workers' compensation insurance reserve development, and policy-in-force growth, but Helene "put third-quarter earnings in question."

"It will likely be a profitable quarter for the P&C insurers," Newsome said, "but the level of profitability will be difficult to judge with a big catastrophe loss where the insured losses remain unclear."

Progressive sets pace in Q3 revenue

Analysts are predicting another strong quarter for Progressive in terms of revenue growth in addition to being the second-largest US insurer by market cap in the third quarter.

The Mayfield Village, Ohio-based insurer is expected to report the highest revenue in the analysis at $19.06 billion, up sequentially from $17.9 billion and year over year from $15.59 billion. Allstate was second-highest at $15.44 billion, followed by Chubb at $12.59 billion and Travelers at $10.57 billion.

Ten companies in the analysis are expected to show both year-over-year and sequential improvement in revenues: Chubb, Travelers, Progressive, The Hartford Financial Services Group Inc., Markel, W.R. Berkley, Old Republic International Corp., Hanover Insurance, Horace Mann and Selective Insurance Group Inc. Insurers projected to show decreases in both are Kemper Corp. and Assured Guaranty Ltd.