Stifel: Rate Increases Alone May Not Boost Specialty & Bermuda Insurers

While commercial-insurance rates are on the rise, other factors could pressure fourth-quarter earnings for specialty and Bermuda insurers, according to an analyst's report.

Stifel Nicolaus says the combination of dwindling reserves, loss-cost inflation and Superstorm Sandy losses will put pressure on underwriting margins for specialty insurers and Bermuda underwriters. Low interest rates from fixed-income investments will also put pressure on margins, says the analyst.

Fourth-quarter earnings per share are expected to be negative for most companies the analyst covers, with the exception of RLI, W.R. Berkley and ACE.

Turning to publicly held insurance brokers and primary-insurance carriers, Stifel Nicolaus is a little more upbeat, pointing to how premium increases should help with fourth-quarter performance.

Investors view the personal and commercial lines carriers favorably, despite losses from Sandy, as pricing trends are improving, Stifel Nicolaus says.

Insurance brokers are expected to see the most benefit from rate increases and an improving economy. All of the five publicly held insurance brokers the analyst covers are expected to report positive fourth quarter results.