Strong 1st Quarter P-C Profits Foreseen

Expect strong first-quarter underlying profit margins for the property-casualty insurance industry, an analyst said today.

Bank of America p-c analyst Brian Meredith said that with moderate first-quarter catastrophe losses, the biggest risk in the quarter is adverse development of the 2005 hurricane losses, particularly Wilma, which took place in the fourth quarter.

Chubb, Hartford and St. Paul Travelers are most likely to have some development, as well as some of the reinsurers, Mr. Meredith noted.

Commercial lines profit margins should be excellent, with most companies expected to report combined ratios below 90. “Competition in the casualty markets and non-wind-exposed property business continues to escalate,” Mr. Meredith wrote.

Premium growth for most reinsurers will be flat to down in the quarter as companies seek to reduce exposures and price increases remain focused in the wind-exposed and earthquake catastrophe reinsurance. “Ceding companies are also retaining more risk,” Mr. Meredith said.

But profitability demonstrated in excellent combined ratios should result from the fact that first-quarter catastrophes most likely failed to trigger most covers, he added.

Regarding personal lines, top line pressure in both auto and homeowners should prevail in the first quarter while growth in policies-in-force should continue to decline. “However, earnings and book value growth should be strong due to good underlying margins,” he wrote.

Insurance brokers should continue to display mixed results, with organic revenue growth stable to modestly improving, while wage inflation and pricing pressure continues to hamper margins, he added.

AIG and Chubb are among the companies most likely to surprise analysts on the upside, Mr. Meredith predicted.