Financial analysts from Keefe, Bruyette & Woods have some interesting predictions for the upcoming third-quarter earnings season.

Among them, the investment banking firm says auto competition will increase and Berkshire Hathaway Specialty Insurance will report initial premium growth—likely at the expense of American International Group Inc. (AIG).

KBW says BHSI will continue to develop into a permanent and relevant competitive force in the E&S space.

“Initially, we think AIG will face the brunt of this competition, since BHSI recruited much of its senior management team from AIG, and because Berkshire's unrivalled balance sheet makes it an obvious alternative for large-ticket accounts where AIG was formerly uniquely dominant,” states KBW in its quarterly update.

Also Read: AIG Loses Four Top P&C Execs in Mass Defection to Berkshire Hathaway | Berkshire Hathaway Specialty Insurance is Official

Additionally, KBW analysts see “at least slowing—and possibly reversing—personal auto rate increases” based on recent comments from auto insurance providers.

Also Read: Travelers to Cut Auto Insurance Rates to Battle Competition

Due to this new dynamic in the marketplace, KBW predicts an advantage for Allstate because competitors Geico and Progressive rely more on rate increases to draw interest to their low-cost policies.

Continuing, and to “get the obvious out of the way,” KBW looks for very strong underwriting results during the third quarter because the global weather picture—particularly the U.S. hurricane season—has been relatively benign.

But within a section of the report titled “No Country for Old Accident Year Reserve Charges,” KBW ponders rating actions for any additional companies with disclosures of reserve strengthening—following Tower Group and Meadowbrook. Each was downgraded by A.M. Best Co.

KBW says it agrees with the action against Tower but didn't think Meadowbrook deserved a downgrade because it did a better job of defining where the reserves worsened.

“The key takeaway seems to be that the rating agencies have very little patience for adverse development,” KBW adds. “That's probably bad news for any individual company that discovers a reserve issue over the next few quarters.”

Special Reports /

KBW Q3 Forecasts: Berkshire Specialty Growth at AIG Expense; Auto Competition

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