Most insurers are expected to report solid underwriting results in Q1 2014, despite winter storms in the United States, Western and Central Europe and Japan, according to financial services research firm Keefe, Bruyette & Woods. However, offsetting that positive news, pricing continues to decelerate due to abundant supply, and the yield curve is slightly flatter, including a lower 10-year Treasury yield, decreasing earnings for many insurers.

From any perspective, the available supply of reinsurance is steadily depressing pricing even beyond southeastern U.S. property catastrophe risks, Keefe, Bruyette & Woods (KBW) said in the report. Some insurer/reinsurer hybrids are therefor putting capital toward specialty commercial insurance lines, which isn’t helping these lines’ pricing, but KBW contends the main driver of decelerating commercial insurance pricing is the industry’s “sequentially improved underwriting results in 2013.”

See also KBW: P&C Insurers’ Operating Earnings to Improve Modestly in 2014

U.S. Treasury yields also have declined in the first half of the first quarter, after which notes have diverged. The five-year ended the quarter flat; the two-year rose 5 basis points above year-end 2013 levels, but the three-month dropped by 3 basis points and the 10-year by 29 basis points, which KBW said adds up to “a modest 1Q14 book value boost.”

Issues likely to arise on insurers’ conference calls this quarter include intensifying personal auto price competition, higher year-over-year contingent commissions and diminishing expectations of property-catastrophe price bottoming. KBW left ratings unchanged due to the generally stable operating environment. However, the analysts are adjusting earnings-per-share estimates because of winter weather.

Significant U.S. weather events to date include:

1/1-1/5 Winter Weather Midwest, Ohio Valley, Northeast;
16 deaths, 10,000 structures;  $200 million in claims damage

1/5-1/8 Winter Weather Midwest, Northeast, Southeast
21 deaths, 150,000 structures; $3.0 billion in claims damage

1/20 - 1/22 Winter Weather Central and Eastern U.S.
4 deaths, Thousands of structures; $500 million in claims damage

1/26 - 1/29 Winter Weather Southeast, Midwest, Mid-Atlantic
13 deaths; Thousands of structures; $250 million in claims damage

2/3 - 2/6 Winter Weather Midwest, Plains, Northeast
9 deaths; 30,000 structures; $250 million in claims damage

2/11 - 2/14 Winter Weather Southeast, Northeast
25 deaths; 50,000 structures; $900 million in claims damage

2/20 - 2/21 Severe Weather Midwest, Southeast, Mid-Atlantic
1 death; 20,000 structures; $175 million in claims damage

3/6 -3/7 Winter Weather Southeast, Mid-Atlantic
0 deaths; 12,500 structures; $100 million in claims damage

Source: Aon's Impact Forecasting

Winter Weather Exposure

Company

Property Exposed DWP

Total DWP

%

P&C Industry

29,163,485

535,154,360

5.4%

Cincinnati Financial Corp.

658,943

4,084,470

16.1%

Hanover Insurance Group Inc.

478,184

3,823,319

12.5%

State Auto Insurance Companies

237,66

1,995,286

11.9%

Chubb Corp.

977,223

9,914,365

9.9%

Allstate Corp.

2,226,675

27,583,581

8.1%

Horace Mann Educators Corp.

42,709

588,567

7.3%

Donegal Insurance Group

49,435

720,106

6.9%

Travelers Companies Inc.

1,435,847

22,842,941

6.3%

Hartford Financial Services

595,994

10,870,904

5.5%

United Fire Group Inc.

25,133

754,594

3.3%

Selective Insurance Group Inc.

63,138

2,135,158

3.0%

W. R. Berkley Corp.

119,380

4,598,538

2.6%

Meadowbrook Insurance Group

16,994

735,376

2.3%

American International Group

306,979

17,802,678

1.7%

Employers Mutual Casualty Co.

11,522

888,609

1.3%

Markel Corp.

28,401

2,322,908

1.2%

American Financial Group Inc.

51,464

4,409,025

1.2%

HCC Insurance Holdings Inc.

12,748

1,153,322

1.1%

Mercury General Corp.

25,878

2,682,060

1.0%

RLI Corp.

5,272

770,142

0.7%

Source: SNL Financial

Note: Exposed property included Homeowners & CMP from IA, IL, IN, KY, MI, MN, MO, MT, ND, NY, OH, SD, WI, WV

“The belief, or hope, that [January 1] property-catastrophe reinsurance pricing declines were just a catch-up to mid-year 2013 levels, and that mid-year 2014 renewals would stabilize is being increasingly challenged, and we expect compounding double-digit decreases in June and July,” KBW said. “According to a recent Willis Capital Markets & Advisory analysis, the trailing-12-months’ average risk premiums for both U.S. wind-exposed and non-U.S. wind-exposed catastrophe bonds dropped to (at least) five-year lows in 1Q14 reflecting the of increasing supply of capital.”

See also KBW on Q4 and Beyond: Life Strong, P&C Acceptable

Personal auto insurance also is softening, KBW said. “We think we’re in the early stages of more aggressive personal auto price competition, Travelers is lowering both expenses and rates to attempt to stanch its double-digit policies-in-force declines each quarter of 2013. Aggregate premium increases, which also incorporate the upward "premium drift? stemming from newer, more expensive cars, have slowed.”

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