Higher catastrophe losses should help push Q3 2021 earnings per share below consensus for carriers, but rate increases should help boost reinsurer results, according to KBW analyst Meyer Shields.
What specifically will worsening carrier Q3 earnings? Shields’ earnings preview expects Hurricane Ida, European flooding and other adverse weather events to create above average Q3 losses. Another factor that will hurt – rising costs for vehicle parts and repairs, construction materials and related labor costs, according to his assessment.
P/C Insurance Trends in Q3
Additionally, KBW/Shields expects a common theme to emerge for both commercial lines and personal lines results.
For commercial lines, most Q3 2021 written and earned rate increases slowed sequentially, but they still remain above loss trends. Slowing rate hikes are likely to continue as insurers deal with elevated and/or accelerating loss trends, KBW said. With that in mind, Shields expects the biggest rate increases for cyber insurance, and the smallest for workers compensation.
For personal lines, core loss ratios will likely be up year-over-year, due to normalizing post-pandemic driving patterns, significant loss cost inflation and flat-to-down earned rate levels, though this should be offset by declining marketing spend.
Shields expects modest written auto rate decreases to continue through the end of 2021, reflecting both market competition and regulatory friction. Personal property rates should soon rise in response to persistent large losses, rising claim costs, and still-rising reinsurance costs.
Reinsurance and Brokers
As Q3 catastrophe losses will be on the high side, KBW/Shields expect reinsurers to bear the brunt of the cost. That reality means reinsurers will deal with both the actual Q3 losses and aggregate reinsurance protections, though core loss ratios year-over-year should generally decline.
There is plenty of capital in the reinsurance sector. EvKen so, Shields predicts optimistic 1/1/22 reinsurance renewal pricing forecasts, due to “2021’s significant and unusual losses.”
On the broker side, Shields expects persistent commercial P/C rate hikes and “steady year-over-year exposure unit growth,” (even with some Delta related fluctuations) that will drive upper-single-digit or higher organic growth for most brokers.
Source: KBW