Catastrophes have wreaked havoc on P&C insurers’ Q2 earnings. Major losses from tornadoes, other bad weather and earthquakes have eliminated earnings for many, reports
Combined with RMS model changes, these loss events—including New Zealand and Japan earthquakes—are increasing awareness among underwriters of growing risk exposures. Most directly, the impact has been in the catastrophe and property reinsurance markets where rates at mid-year appear to be up in the 8% to 12% range. In other lines, particularly most casualty areas, downward pressures still persist as reported results remain stable, buoyed by ongoing reserve releases from the years 2003-2007. Partially offsetting pricing softness, KBW expects that year-over-year improvements in the economy could lead to top-line growth.
The P&C sector has been relatively weak in recent weeks, despite the group’s reputation as “defensive,” KBW says. And, the bank anticipates return on equity to be in the single digits for 2011, with many companies losing money, and book values likely flat to down.
KBW continues to recommend ACE Ltd. due to expectations for improving growth in 2011 as the Rain and Hail acquisition is integrated and Chubb Corp. remains a best-in-class insurer now trading close to book value. KBW also continues to recommend Allied World Assurance Holdings Ltd., and views the recently announced transaction with Transatlantic Holdings as creating a powerful global franchise, which is undervalued at current levels. KBW maintains its “underweight recommendation for the sector but reiterates buys on ACE, Allied, Chubb Corp. and ProAssurance Corp.
