According to some equity analysts that track the insurance and reinsurance sector, reinsurers should anticipate losing 80% or more of their 2017 earnings due to the impacts of the hurricane season and other catastrophe events.
Having analysed some of the industry loss estimates, including the one for hurricane Maria from AIR Worldwide, analysts are beginning to come to the conclusion that the 2017 catastrophe events could become a capital event for some and a significant hit to earnings for the majority of the reinsurance market.
Analysts at J.P. Morgan see the catastrophe loss to the industry in 2017 as becoming the largest bill on record, at around US $140 billion when factoring in a normal fourth-quarter cat loads as well.
As a result of this, the analysts believe that the majority of reinsurers will face at least an 80% erosion of their full-year profits, which is much worse than the early disclosures suggested.
Some reinsurers have come out saying to expect a Q3 hit, but no real impact to the full-year profit targets. In fact Hannover Re is the only reinsurer that has said it expects to go over its catastrophe budget for the full-year, despite the fact it’s becoming increasingly clear that many will.
So we should expect some more meaningful profit warnings in the coming weeks, as other reinsurers also all get to grips with the level of losses they are facing. There are likely to be a number of pre-Q3 results announcements on losses, as reinsurers typically prefer to avoid concerning the market too much on results day.
However, the analysts at J.P. Morgan say that they don’t expect a raft of outright losses for the year, rather a year where earnings are close to zero for many players.
Analysts at Citigroup were a little more bearish, saying that they see the potential for almost all reinsurers to experience a complete wipe out of their 2017 earnings, due to the extreme level of hurricane losses.
In a nutshell, the message to the equity investors these analysts provide their research to is to expect higher levels of earnings impact and in a number of cases expect earnings to be completely wiped out for 2017.
However, none of the analysts believe that a major change in reinsurance pricing is coming, although all of them do expect that the softening will come to an end and at least some price rises will be seen at upcoming renewals.
Some solace for the reinsurers that take the biggest earnings hits, as long as they can mobilise sufficient resources to take advantage of any market hardening that is seen.
