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Active but manageable cat load to hit P&C earnings in Q2: Analysts

12th July 2019 - Author: Luke Gallin

On the back of an active period for catastrophes but still manageable underwriting losses, improved investment returns, and the improving rate environment, analysts at J.P. Morgan are expecting property and casualty (P&C) re/insurers to report mixed earnings for the second-quarter of 2019.

market growthGlobal insurers and reinsurers are soon to announce their financial results for the second-quarter of 2019 and the first-half of the year.

As is typical of a second-quarter, catastrophe activity in the period was heightened again in 2019, driven in part by severe weather and storm activity in the U.S through April and May. Despite the heightened catastrophe activity in the period, analysts expect underwriting losses from natural catastrophes to be manageable.

Furthermore, carriers continue to benefit from the broadly improving rate environment and analysts also expect further benefits from favourable prior year reserve development, despite the fact that overall, favourable development is expected to continue to trend downwards moving forward.

Investment income is expected to improve in 2019 when compared with the second-quarter of last year, which should further boost earnings for the P&C sector.

“We estimate mixed 2Q19 earnings across our coverage group but expect overall operating trends for the commercial (re)insurers, personal lines and insurance brokers to remain positive. Broad industry pricing improvements are expected to provide a tailwind to commercial carriers’ top-line growth and earnings,” say analysts.

Overall, analysts said that underlying margins could “improve slightly” in the quarter, driven by improving pricing that is somewhat offset by slightly deteriorating loss ratios.

During the recent mid-year renewals, P&C players experienced meaningful rate increases and there’s optimism across the reinsurance sector that rate improvements will be sustainable in the near-term.

It will be interesting to see how sustainable rate increases are and if the more positive tone across the sector persists through the year and into the January 2020 renewals. Of course, market dynamics will change again should 2019 be another active year for catastrophes which translate into meaningful industry losses. And with the 2019 Atlantic hurricane season underway, re/insurers will be all too mindful of the impacts of 2017 and 2018 events, which to this day continue to hit the sector in the form of loss creep.

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