Analysts at Morgan Stanley have lowered catastrophe loss estimates for both U.S. primary insurers and reinsurers ahead of Q1 2020 results season, driven in part by lower-than-expected U.S. spring storm activity.
Unsurprisingly, the focus of first-quarter 2020 results is expected to be the ongoing COVID-19 coronavirus pandemic, but a reduction in catastrophe activity and recently announced premium payback initiatives will have an influence on company performance.
Analysts note lighter-than-expected U.S. spring storm activity as well as a minimal number of destructive weather events outside of the states in the period, all of which has resulted in reduced catastrophe loss estimates for domestic primary carriers and reinsurers.
While the U.S. catastrophe loss experience was particularly quiet in Q1, analysts warn that both reinsurers and global primary players could see some impact from a number of European windstorms and also some severe adverse weather in Australia.
As highlighted by Morgan Stanley, the lower catastrophe experience in Q1 can be seen with primary insurer Allstate. After announcing cat losses of $58 million for the month of January, the firm reverted back to its previous cat loss reporting threshold of $150 million in a calendar month.
Subsequently, the insurer has not reported its cat loss experience for either February or March, suggesting that losses in both months fell below the threshold. As such, this suggests that the company’s Q1 2020 catastrophe loss experience will at the most reach $358 million, which is some way below the $680 million the firm announced in the first-quarter of 2019.
Although lower catastrophe losses will benefit the underwriting performance of both insurers and reinsurers in Q1 2020, efforts by some to return premiums to customers in light of stay at home measures is expected to hit top line growth.
This is most notable within the auto insurance sector although recent commentary has suggested this trend is also increasingly occurring in the commercial insurance space. A number of personal auto insurers, Allstate included, have announced plans to return premiums to customers as the number of traffic accidents drops significantly amid fewer drivers on the road and less miles being driven.
As a result of these initiatives, analysts have lowered premium expectations for companies, with the most significant impact expected in the second-quarter of the year.
“We have also further reduced auto loss ratio assumptions over 9M20, as the magnitude of the payouts indicate greater frequency benefit than we initially contemplated,” explain analysts.
