Stronger P&C Players to Pull Away from Pack in 2012: KBW

Global investment bank Keefe, Bruyette & Woods (KBW) says P&C insurance companies may not see improvements in earnings per share or return on equity in fourth-quarter earnings, but there’s a silver lining for some companies.

According to a fourth-quarter earnings preview, KBW says the silver lining is “an improving, or at least not worsening, pricing environment.”

Though the industry is not in the midst of a full-steam-ahead hard-market moment, there is some positive movement as pressures such as losses from natural perils, low investment yields and dwindling reserve redundancies weigh on insurers.

KBW views those with the best reserve positions and underwriting wisdom to be in the best shape to take advantage of developing conditions in the market, with “a separating of the pack to begin occurring in early 2012.”

More than growth, attention during fourth-quarter calls on earnings will be paid to Jan. 1 reinsurance renewals and pricing improvements in the U.S. commercial lines.

KBW says Jan. 1 U.S. Property Reinsurance renewals on average were up between 1 percent and 4 percent. Additionally, the investment bank says it expects to hear some insurers tell of mid-single-digit rate increases in commercial books, with others reporting flat results. Still, that is an improvement, says KBW.

Pricing is expected to be up 5-15 percent in the Homeowners’ market, and since loss trends in Personal Auto are edging higher, modest price increases should be seen there as well.

Turning to regional agency and specialty subsectors of the industry, KBW says it forecasts a continuation of favorable reserve development in the fourth quarter, but it remains “increasingly concerned about the industry’s reserve adequacy in light of deterioration in the more recent accident year, particularly for Workers’ Compensation.”

KBW expects all reinsurers to be somewhat exposed to the flooding in Thailand, at varying degrees. Plus, additions to prior-year catastrophes are possible for the group.

Mergers-and-acquisition activity among brokers is anticipated to improve, especially for the middle-market. KBW says that “deal pipelines remain robust and sellers are gradually becoming more comfortable with current valuations.”