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Cat losses, inflation among focal points during P&C insurers' Q3 earnings season

Catastrophe losses and ongoing inflation issues are expected to be some of the main topics of interest during third-quarter earnings calls of U.S. property and casualty and multiline insurers.

All but one of the 20 largest P&C and multiline insurers for which estimates are available are expected to log lower EPS sequentially for the third quarter, though a strong majority are projected to post EPS growth on an annual basis, according to an S&P Global Market Intelligence analysis.

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Piper Sandler analyst Paul Newsome in a research note pointed out that insurers are facing two different sources of cost inflation, namely social inflation caused by claims litigation and everyday goods and services inflation. It remains to be seen whether inflation trends are due to supply channel bottlenecks following pandemic-related shutdowns, which Newsome considers "transitory," or whether inflation pressures are more persistent than expected.

Wells Fargo analyst Elyse Greenspan will be looking for comments on loss costs and plans to mitigate severity trends through rate adjustments with inflation continuing to rise and the globe facing supply chain constraints. She will also look to get executives' thoughts on social inflation as courts start to physically reopen and claims-related litigation gets moving again.

P&C insurers are also dealing with a busy Atlantic hurricane season, with Ida and Nicholas accounting for a substantial chunk of insured losses in the third quarter. From January through the end of September, the U.S. has experienced 18 weather and climate disasters that each incurred losses exceeding $1 billion, according to the National Oceanic and Atmospheric Administration.

While U.S. P&C insurers are positioned for full-year results that exceed 2020 earnings, Fitch Ratings said further profit expansion will be "tempered" by recent catastrophe events. The rating agency expects personal and commercial lines underwriting performance to further diverge in the second half, with personal auto pricing actions likely to lag deterioration in loss experience.

The homeowners segment could incur further insured losses on top of the $20 billion to $30 billion estimates by risk modelers for Hurricane Ida, Fitch added.

The Travelers Cos. Inc. will release its third-quarter results Oct. 19 before the market opens. Newsome said the company may report a "high level" of catastrophe losses, although this could be offset by better underlying results and net investment income.