Cat events to weigh on P&C insurers’ Q3 results

Multiple global catastrophe events could push the US property/casualty insurance industry loss above historical third quarter average levels of $13 billion, according to Morgan Stanley Research.

Notable events include hurricane Florence (~$5 billion) and California wildfires (~$1 billion) in the US, as well as Typhoon Jebi (~$6 billion), flooding and earthquake in Japan, Typhoon Mangkhut (~$2 billion) in Southeast Asia, and devastating earthquake and tsunami in Indonesia.

The frequency and geographic diversity of these events make it difficult to assess individual company's exposure, Morgan Stanley noted. The investment bank lowered its third quarter P&C carrier earnings per share (EPS) expectation by -7 percent on average, and are now -3 percent below consensus.

“We wouldn't be surprised by pre-announcements in coming weeks,” analysts said in the note. Morgan Stanley estimates ~9 percent median return on equity (ROE) and +1 percent book value (BV) growth. Analysts see most EPS upside in Everest Re and Progressive while most downside in National General Holdings and Travelers. For P&C brokers, analysts are largely in-line with consensus, with +4 percent average organic growth.

Overall Morgan Stanley perceives P&C pricing as largely stable, but analysts are seeing some deceleration: Personal auto insurers are increasingly focusing on market share gain, workers' compensation pricing is declining, property cat reinsurance rates could be flat to down at Jan. 1 renewals. At the same time, analysts have observed a rising loss trend in select lines including higher legal costs in professional lines and higher claim frequency in workers' compensation. “Insurers' ability to maintain underlying margins holds the key to forward earnings trajectory,” according to the note.

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