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Property/casualty insurers' Q3 underwriting results look strong: KBW

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Property/casualty insurers' Q3 underwriting results look strong: KBW

Most property/casualty insurers should report strong underwriting results in the third quarter, according to an analysis released Monday by Keefe, Bruyette & Woods Inc.

In the analysis, “What If They Threw a Hurricane Season (And Nobody Came)? 3Q13 Preview,” KBW said: “just to get the obvious out of the way, we expect most insurers should post very strong underwriting” third quarter results due in part by generally favorably global weather except for July's Canadian, French and German hailstorms and several mid-summer U.S. thunderstorms and hailstorms.

KBW said that, “other than what might be unusually favorable weather,” most of the property/casualty industry's previous trends continued in the third quarter of the year. These included stable mid-single-digit commercial lines rate increases; modestly rising interest rates, still-low claims cost inflation; and modest positive economic growth.

But KBW added it believed most insurers' third quarter results should reflect the quarter's favorable weather, “but beneath the surface, we expect to see the first signs of deteriorating core (i.e. excluding catastrophes and prior period reserve development) underwriting results as significantly lower … property catastrophe reinsurance renewals start flowing into earned premiums.” It noted that in recent years, most insurers that write both primary insurance and reinsurance have seen more favorable underwriting results in their reinsurance operations.

The report also said KBW thinks underwriters' “return targets are lower than they should be, since declining investment income implies a proportionate over-reliance on underwriting profits, which benefited from somewhat unforeseeable benign casualty loss trends and favorable weather.” But the report noted that given low yields and “back-burner risk of accelerating loss cost inflation, insurers simply aren't abandoning price discipline, and frankly, we don't think they will.”

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