Catastrophe losses for property and casualty (P&C) re/insurers over the third quarter of 2018 will drop dramatically year-on-year, but the large number of smaller events over this period will still produce sizeable losses, according to analysts at Keefe, Bruyette & Woods (KBW).
KBW estimates that global insured catastrophe losses for Q3 2018 will total $13.7 billion, largely driven by Hurricane Florence, several Asian typhoons, Colorado hailstorms, California’s Carr wildfire, and several smaller events.
Of these, Hurricane Florence is expected to be the most costly event, with limited property losses but significant auto physical damage due to the widespread flooding. Losses will also potentially be exacerbated by Hurricane Michael, KBW added.
Nevertheless, Q3 cat losses will be manageable for most re/insurers, KBW said, with core accident-year margins expected to be roughly stable in most lines besides personal auto, workers compensation and crop.
Overall pricing trends will also reflect expected line-specific returns, with most commercial casualty lines’ increases expected to strengthen over H2 2018, while commercial property and personal auto increases are expected to fade.
Reinsurance pricing will range from flat to down for permanently overcapitalised property lines to up modestly for most casualty lines, analysts said.
Additionally, KBW predicted that rising interest rates will boost re/insurers’ current and future investment income to outweigh modest Q3 book value headwinds, while higher short-term interest rates y/y should augment brokers’ margin expansion and better commercial lines pricing.