Hurricane losses remain the No. 1 variable as the third-quarter financial reporting dates approach for property-casualty insurers, but the sector's prices are firming, according to analysts.
Meanwhile, a consumer group said insurers can expect hefty profits.
Analyst Cliff Gallant at Keefe Bruyette Woods in New York noted that many carriers have not yet released initial loss estimates, while others say that estimates are changing upward. "As such, it is likely we have yet to see the full effect of these events on the industry," he wrote.
While property-casualty specialty lines appear to be firming ahead of January renewals, the hurricanes' impact on the market is uncertain.
"Catastrophe models must be rebuilt, property exposures reassessed, and we are concerned that capital requirements, as dictated by ratings agencies, are likely to change materially," Mr. Gallant wrote.
Thus, the old equation of higher rates equalling higher returns may prove faulty, he added.
While analysts may debate whatever negative impact the storms will have on carrier earnings this year, insurance industry critics see big profits no matter how you slice it.
J. Robert Hunter, director of insurance for the Consumer Federation of America, called the insurance industry a "money machine."
He noted that after-tax profits for the first half of the year reached nearly $31 billion, and said he expects profits for the entire year to approach the $35 billion figure on an after-tax basis.
Over the past five years, which included the Sept. 11 attacks, the industry will have added about $100 billion to its retained earnings, he said.
"To put this into perspective, in only two years in the industry's history have property-casualty insurers earned higher profits than those that are projected for 2005," Mr. Hunter said.
So far, Progressive remains the sole major carrier to report earnings for the third quarter. While the Mayfield Village personal lines carrier reported a 21 percent decline in earnings and $185 million in catastrophe losses, analysts noted the figure was up from estimates due to solid non-catastrophe underwriting and investment profits.
Standard & Poor's also does not see the catastrophe losses putting the property-casualty industry in dire straits.
"Although hurricane-related catastrophes have dominated the news, over the past quarter there has been less dramatic price-softening in the property-casualty sector than originally feared," the agency said in a report issued today.
Hurricane losses are expected to boost prices in the near term. Thus, the outlook for both commercial and personal lines carriers will remain stable, the agency said.
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