Q2 storm losses could portend 'bad year' for US P&C insurers

Heavy weather losses stand to be the focal point for investors and analysts when US property and casualty insurers release second-quarter financial results.

After enjoying a respite from severe weather in the two previous three-month periods, the second quarter was dominated by a series of severe convective storms and tornado outbreaks that stuck large swaths of the country from Texas to the Northeast. Large losses from those storms, coupled with the historic early appearance of powerful Hurricane Beryl have raised some red flags for insurers, Keefe Bruyette and Woods analyst Meyer Shields said.

"I think fear is the predominant emotion in [the property and casualty segment] of the industry," Shields said in an interview. "[Beryl] certainly reinforces people's concerns that this could be a bad year. We don't know if it will be a bad year in terms of insured losses, but there's reason to be nervous."

Weather rocks ratios

An S&P Global Market Intelligence analysis found that sell-side analysts expect combined ratios to rise year over year at 10 of 19 of the largest publicly traded US property and casualty (P&C) and multiline insurers. Nearly all of them are expected to see their combined ratios climb sequentially.

There were nine weather events in the second quarter that generated at least $1 billion in inflation-adjusted economic losses, according to NOAA's National Centers for Environmental Information. Those events were responsible for 39 deaths and cost a total of $23 billion. Added to the six such events in the January–March period, there were 15 billion-dollar events in the first half of 2024 that led to 106 deaths and $37.9 billion in costs.

Six insurers are projected to record combed ratios in excess of 100% in the quarter, signifying underwriting losses. Horace Mann Educators Corp. is expected to have the highest at 114.7%, followed by The Allstate Corp. at 108.1%, The Hanover Insurance Group Inc. and Cincinnati Financial Corp. at 101.1%, and The Travelers Cos. Inc. and Assurant Inc. at 100.7% each.

Monthly reports from Allstate and The Progressive Corp. show how the weather has affected their bottom line. Allstate reported catastrophe losses of $494 million and $1.48 billion in April and May, respectively. BMO Capital Markets estimated the company's catastrophe losses for the quarter at $2.65 billion, compared to nearly $2.70 billion in the same period in 2023.

Progressive's numbers were less stark at $1.3 billion, according to Tim Zawacki, principal research analyst for Market Intelligence, but were up year over year from $1.02 billion. The bulk of this year's catastrophe losses so far occurred in May, when the insurer reported such losses of $722.1 million.

Mixed bag for the bottom line

Sell-siders expect year-over-year improvement in normalized earnings per share for 17 of the 20 companies in the analysis, but they also expect the same number of companies to report lower EPS compared with the first quarter.

Markel Group Inc. had the highest EPS in the analysis at $22.24, down slightly from the $22.91 booked a year ago, but up sequentially from $21.23. Chubb Ltd. was second highest at $5.16, followed by Assurant Inc. with $3.92, Axis Capital Holdings Ltd. with $2.59 and American Financial Group Inc. with $2.47.

Allstate is projected to record a loss of 50 cents per share, the only insurer in this analysis expected to report a loss. Still, that would be a marked improvement from a loss of $4.42 a year earlier.

UBS analyst Brian Meredith and Piper Sandler's Paul Newsome have pointed to higher ratios and elevated catastrophe losses as reasons for them to reduce their second-quarter EPS estimates across the board. Meredith in a research note said that second-quarter estimates for the personal lines insurers he covers are 5% lower than the consensus for equity analysts who cover the same stocks and 2% lower than the consensus across commercial line names.

Newsome said his EPS estimates for nine of the 15 P&C companies he covers are "below consensus," citing unfavorable weather that has led to "pessimism for bottom-line results."

"Of course, we don't really know if the quarter will turn out to be a good or bad one until the final day of the quarter is past," Newsome said in a research note. "But reported results from Allstate and Progressive suggest May and April were tough months."

Progressive tops revenue list

Along with showing increasiing strength in the stock market, Progressive is also flexing its muscles in the P&C universe.

The Mayfield Village, Ohio-based insurer is expected to report revenue of $17.46 billion, the highest total in the analysis. That is down from $18.96 billion last quarter, but up from $14.72 billion a year ago. Allstate was second-highest in the analysis with $14.81 billion, followed by Chubb at $11.72 billion and Travelers at $10.42 billion.

Ten companies are expected to show both sequential and year-over-year improvement in revenues: Chubb, Travelers, The Hartford, Assurant, American Financial, Hanover Insurance, Horace Mann, Selective Insurance Group Inc., CNA Financial Corporation and W.R. Berkley Corp. Those projected to show decreases in both are Cincinnati Financial, Markel, Kemper Corp., Assured Guaranty Ltd. and American International Group Inc.