In a new report, Keefe, Bruyette & Woods (KBW) anticipates P&C pricing pressures to remain modestly upward while investment incomes will continue to decline. Overall, the firm expects the P&C sector to have a strong Q3 earnings season, saying, “top picks are those we view to have stable reserves and the ability to show profitable growth such as ACE Limited, AXIS Capital Holdings, ProAssurance Corp. and PartnerRe.”
According to the report, U.S. commercial lines appear to be up in the 6-7 percent range and personal lines are rising in the 2-3 percent range. In terms of reinsurance, the report anticipates generally flat rates for January 1, including catastrophes lines, “despite what is shaping up to be a catastrophe-free year.”
KBW also notes that the slow collapse of investment income should continue to show in Q3 earnings. In 2Q12, an average decline of 3.4 percent was reported—KBW expects similar pressure in 3Q. In contrast, according to the report, those with equity market exposure should have had a good quarter with the S&P up 5.8 percent.
“We expect that investors will be keenly focused on capital management during quarterly calls,” the report reads. “Amongst the Bermudians in particular, after a quiet hurricane season and what we expect will be flattish January 1 pricing, we expect to see an uptick in share repurchases.”
While KBW is content not revising EPS estimates, as any losses experienced from the drought and Hurricane Isaac are on par with the conservative estimates, it does note that “one potentially bullish point for the sector could be signs that the pricing improvements have outpaced loss trends with the benefit falling to the bottom line.”
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