NU Online News Service, April 7, 1:13 p.m. EST
A global hardening of prices in the property and casualty industry will likely not occur despite one of the worst quarters in underwriting history, says global investment bank Keefe, Bruyette & Woods (KBW).
In its first quarter earnings preview, KBW says it expects nearly all reinsurers from Bermuda to show a loss in the first quarter, with some on pace to remain in the red for the year as a result of the significant global catastrophes—which KBW calls possibly the worst first quarter of catastrophe losses in history for the Bermuda group.
KBW estimates that catastrophes in the first quarter— led by the earthquake and tsunami in Japan, an earthquake in New Zealand, and Cyclone Yasi and flooding in Australia—will cost the Bermudians KBW follows nearly $6 billion.
The firm does see some price hardening in "loss-impacted geographies" but only a "modest improvement" in U.S. catastrophe-exposed business. KBW expects a slight uptick (up to 5 percent) to flat rate renewals in Florida—a byproduct of the world's catastrophes and revisions to Risk Management Solution's hurricane model.
Previously KBW estimated that renewals in the U.S. would be down as much as 10 percent. Though KBW revised its expectations only slightly, the investment bank says the industry looks to be one more loss away "from having legitimate capital questions arise." Right now there "are no questions regarding the capital adequacy of the industry or even individual insurers or reinsurers," KBW says.
The earthquake activity in the world is expected to awaken awareness for protection in California, especially on the commercial side, says KBW.
Sticking with the Bermuda group, KBW says activity in mergers and acquisitions could heat up as smaller companies that now have a weaker position after the active first quarter look to pair up with larger competitors.
In personal lines, companies are projected to see impact from winter weather in the United States. One storm in early February generated estimated insured losses of between $790 million and $1.4 billion. KBW says it anticipates average low-single-digit increases across homeowners and automobile insurance throughout the year.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.