All 20 of the largest U.S.-listed commercial insurers reported EPS beats in the second quarter, according to an S&P Global Market Intelligence analysis, benefitting from better pricing and lower catastrophe losses during the period.
UBS analyst Colm Kelly said the earnings beats provide evidence for investors that the positive rate momentum seen in U.S. commercial lines in the last two to three years is flowing through to the bottom line, showing up in better-than-expected underlying performance or prior-year development. Kelly also that part of the strong earnings performance was driven by a benign catastrophe loss quarter in the U.S.
American International Group Inc., the largest commercial insurer by assets, reported EPS of $1.52, higher than the mean EPS estimate of $1.20. CEO Peter Zaffino in the company's latest earnings call said AIG recorded overall global commercial rate increases of 13%. He noted big improvements in excess casualty, which was up 20%; Lexington Casualty, which rose 19%; and Lexington wholesale property, which was up 15%.
International commercial rate increases were also 13%, driven by financial lines, which was up 21%; property, which rose 18%; and energy, which was up 16%, Zaffino added.
The CEO also noted that the global commercial segment logged an accident year combined ratio of 89.3% without catastrophe losses, an improvement of 500 basis points year over year and the best result the segment has reported in the last 15 years.
The Travelers Cos. Inc. logged EPS of $3.45 in the second quarter, far surpassing the mean analyst estimate of $2.38. CEO Alan Schnitzer said written pricing in Travelers' commercial businesses is outrunning the estimated loss trend.
"Continuing strong pricing and retentions reflect the industry's clear eye view of the ongoing headwinds impacting returns for the industry, including weather volatility, low interest rates and social inflation," Schnitzer added. "We expect pricing to continue to outpace loss trends for some time."
Reinsurers also registered strong earnings beats, including Reinsurance Group of America Inc., which posted second-quarter EPS of $4.00. Piper Sandler analyst John Barnidge in a research note said RGA's earnings were "remarkably better" than his already high expectations, as improving distribution drove top-line premium higher by 11%.
Willis Towers Watson PLC in a report said continued favorable pricing, particularly for commercial lines business, supported meaningful premium growth in the first half for a majority of the insurers and reinsurers the global broker tracks.
Keefe Bruyette & Woods analyst Meyer Shields expects most North American and international commercial lines' rates to keep rising throughout 2021 and well into 2022. In a research note he said those increases will reflect low interest rates, volatile construction materials and labor cost inflation and still-elevated social inflation.