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Cat losses expected to hit insurer results

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Underwriters can expect to feel “some sting of losses” to their second quarter results, according to an analysis released Wednesday by investment firm Keefe Bruyette & Woods Inc.

Merger and acquisition activity among insurers may also tick up this year, said KBW in “2Q16 P&C Preview: The Cat Comes Back.”

The report said that overall, insurance pricing was higher than KBW had previously expected. Both commercial and personal lines automobile insurance rates are up “in response to widespread rate inadequacy, but several other insurance and reinsurance (particularly property catastrophe reinsurance) lines' rate decreases slowed as the quarter progressed.”

KBW noted that after almost three years of “quite limited catastrophe loss activity, we expect (second quarter) results to include some sting of losses.” The last major catastrophe to affect global reinsurers was October 2012's Superstorm Sandy, which resulted in about $36 billion in insured losses, said KBW. 2016 second quarter losses, which included the Fort McMurray wildfires in Alberta, Texas hailstorms and flooding in April, and April earthquakes in Kumamoto, Japan, will likely “pierce reinsurance layers” and total global insured catastrophe losses will likely exceed $12 billion, according to the report.

KBW also expects merger and acquisitions to pick up, probably following hurricane season as “expenses factor into competition, but the recent slowdown in deals, declining fixed maturity yields, and limited organic growth opportunities suggest that most insurers will return earnings-generated capital to investors through dividends and share repurchases.”