First Quarter: Industry Gets a Break from Catastrophe Beatings
By CYRIL TUOHY, managing editor of Risk & Insurance®
Fewer catastrophe claims and the firming trend in insurance pricing are expected to help insurers and reinsurers deliver some of their best first quarter results in at least two or three years, analysts said.
"We expect the outlook for commercial property/casualty insurance prices to be robust," said Barclays analysts Jay Gelb and Sarah DeWitt, in an April research note. The pair of analysts raised their earnings-per-share estimates for many insurers and reinsurers.
U.S. catastrophe losses in the first quarter have dropped to an estimated $1.6 billion, down from $2.2 billion in the year ago period. The first-quarter loss estimates, however, don't include the losses from the recent tornados in the Midwest.
Pricing is up 8 percent to 10 percent in the middle market in the first two months of this year, on top of a 7 percent increase in the fourth quarter of last year, the analysts also said, citing a survey by the West Chester, Pa.-based broker HIG.
Separate surveys conducted by the Council of Insurance Agents & Brokers also showed commercial prices increasing 3 percent in the fourth quarter of last year, compared with the year-ago period, the analysts wrote.
The Barclays analysts pointed to price increases in workers' compensation lines, deteriorating underwriting results and higher reinsurance costs as the reasons for insurance pricing having reached a watershed moment.
"The accelerating pace of rate increases reinforces our view that property/casualty pricing is at a positive inflection point for the first time since 1999," the analysts wrote.
About one out of every two risk managers interviewed consider the catastrophe-exposed property insurance market as hard, compared with none six months ago, the analysts said.
Reinsurers, who were hit hard by last year's string of catastrophes, are also raising rates and paying less in claims. "Reinsurers are relieved to be enjoying a better start to 2012 than in the previous two years, with much lower levels of loss activity in both the U.S. and international market," wrote Peter C. Hearn, chairman of Willis Re, in a recent report.
The rate increases are more severe in some lines than in others. On average, midyear renewals in June and July could increase by 5 percent to 10 percent, the Barclays analysts said.
April 1 reinsurance rates in Japan are seeing an increase of 25 percent to 30 percent, on top of the increases of 50 percent to 60 percent last year in the wake of the Great Tohoku Earthquake that struck Japan last March and the flooding that inundated Thailand last summer.
Reinsurers are also applying tighter limits on natural catastrophe losses.
Not all reinsurance rates are spiking as high as property catastrophe, causing reinsurers to carefully parse the risks they are willing to reinsure.
"Reinsurers remain focused," wrote Hearn, in a report titled "Measured Response" on April renewals. "They are taking a highly segmented and increasingly disciplined approach to terms and conditions and are not seeking to apply blanket rate increases."
Reinsurers, Heard also wrote, are hesitant to increase their reinsurance portfolios, preferring instead to wait until they can charge higher prices.
April 10, 2012
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