Insurer results for the second quarter of 2024 are expected to be highlighted by an elevated level of catastrophes, ongoing concerns around casualty loss reserves, and negligible mark-to-market impacts on investment portfolios, JMP Securities has commented.
This year’s second quarter has seen significant catastrophe activity, with severe convective storms (SCS) throughout the Midwest and Southern US coupled with flooding across Europe.
According to analysts, re-underwriting activity will be put to the test by record severe SCS activity, particularly given higher retentions in recent periods.
Additionally, Q2 2024 may prove to be a record in terms of spring weather-insured losses, JMP Securities stated. It was noted that in the US, Texas has been hit particularly hard, as the state has experienced hail/tornadoes in the north, as well as a significant Derecho event that hit the Houston area.
“We believe investors will be keen to see the impact of the benefit of recently-enacted re-underwriting by several carriers (e.g., cancellations, increased roof deductibles, etc.) against the burden of increased reinsurance retentions for many over the past 1-2 years.” JMP Securities stated.
For Q2 analysts also expect overall flat to slightly negative mark-to-market impacts on book values (an estimated -0.4% on average), mainly after major tailwinds in Q1 2023 and some headwinds in Q1 2024.
This would be the result of core inflation remaining “stubbornly sticky”, despite inflationary pressures having eased a bit, with interest rates rising slightly during the quarter and equity markets up modestly (S&P 500 +4% in 2Q; although analysts note some companies report alternative investments on a one quarter lag).
JMP Securities also expects forward-looking commentary on inflation, loss costs/reserve adequacy,pricing, and margins to garner as much investor focus as the quarter itself.
Analysts also forecast investors to remain centred around ongoing signs of casualty reserve stress and growing concern around the sustainability of pricing increases in certain markets (notably property).
“We expect investor focus to remain squarely upon the pricing cycle — specifically surrounding impacts the current inflationary environment may have on loss costs and casualty reserve adequacy, and how pricing in the market may respond to it. We recently described the cycle as approaching the seventh inning stretch, with a likelihood of it being an extra-inning game,” JMP Securities said.
Adding: “We continue to feel like we are headed to extra innings (hard-market cycle likely to have longer duration than most), but now believe we may be closer to the ninth inning.”
Regarding pricing, while it remains firmly positive (with some exceptions) recent conversations with (re)insurance brokers and underwriters suggested limited expectations for pricing to accelerate further, with several property lines seeing a deceleration of rate increases, according to JMP.
This, alongside a potential typical precursor to a broader market slowdown, with recent stamping office data suggesting a potentially slowing growth rate in E&S volumes), as well as incremental capacity returning to the market in certain lines (most notably property cat reinsurance, albeit largely remaining in the upper layers of programs versus the lower, recently vacated layers that are largely responsible for improved reinsurance results).
According to JMP analysts, all the above suggest the peak of hard market conditions is near. But it is with noting that these highly favourable conditions typically persist for some time, hence our “extra innings” metaphor, analysts concluded.
