Catastrophe Loss To Impact Q1: 4 Insurance Outperformers

In 2017, the insurance industry struggled to survive the wrath of an unprecedented hurricane activity which witnessed the landfall of Irma, Harvey and Maria besides the Mexico earthquakes and the California wildfires. These consecutive calamities resulted in a massive catastrophe loss, catapulting last year to one of the costliest periods ever in terms of such huge deficits. Per a report by Munich Re, overall catastrophe loss amounted to $330 billion with the insured losses coming in at $135 billion (less than half of the incurred losses).

The intensity and impact of such catastrophe events shook the insurance industry big time with the losses deeply denting its underwriting results and adversely affecting the insurers’ earnings.

The current year kick-started with the early January California mudslides, causing substantial damages to homes and businesses, and the northeast winter storms, which hit the East Coast on Jan 3 and Mar 1, 2018. In fact, among the property and casualty (P&C) insurers, Chubb Limited (NYSE:CB) has projected total catastrophe loss of $305 million, which are likely to affect the company’s first-quarter 2018 results. Losses from the California mudslides are anticipated at $125 million pretax while northeast winter storms will account for $195 million in loss.

Catastrophe Loss Impact: Still a Silver Lining in the Cloud?

Although the calendar year has just crossed its first quarter, we think that there is still no need for insurers to hit the panic button yet. Analysts from Morgan Stanley (NYSE:MS) have estimated global Q1 insured catastrophe loss to range between $5 billion and $10 billion, which is noticeably below the historical average of $14 billion.

Per a report by Fitch Ratings, the insurance industry is expected to regain its substantial underwriting profitability in 2018, albeit at a slow pace. Moreover, combined ratios are likely to improve and might come close to break-even. Thus, insurance players can expect a better year in terms of catastrophe losses compared with the tumultuous journey in 2017.

Further, catastrophe and rough weather-related events are a necessary evil for P&C insurers to improve their pricing as they eventually reduce competition. Also, occurrence of natural disasters might lead to an accelerated rate of policy renewals.

Moreover, the industry has been strengthening its capital position with earnings growth and policyholders’ surpluses. Such solid liquidity profile will help insurers counter near-term volatility as well as the aftermath of adverse events.

Given the unpredictable nature of weather-oriented episodes, catastrophe loss will always remain a concern for the P&C insurers and we wait to see how they tackle pressure or buckle under it, as the year progresses.

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On a positive front, better-than-expected underwriting results, a solid liquidity position and an evolving coverage opportunity should lend the P&C insurers enough support to grow.

Interestingly, the Zacks Investment Research

Written By: Zacks Investment Research