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Member, Beacon International Group, Ltd.
U.S. property/casualty insurers’ earnings should benefit from lower-than-normal global catastrophe losses, according to an analysis released Monday by Barclays Capital Inc.
But Barclays cautioned in “1Q Preview: P&C Pricing Weakening; Raising EPS on Low Catastrophes,” that although it expects strong earnings to persist in the first quarter of this year, “the outlook for P&C commercial reinsurers is weakening after achieving peak earnings” in 2013.
“Slowing commercial P&C price gains (and collapsing reinsurance rates) command the greatest attention for P&C stocks because pricing is a leading indicator of top-line growth, margins, and ROE (return on equity), in our view,” said Barclays. “We also expect a slowing tailwind from reserve releases, which has boosted earnings for commercial insurers.”
The report noted that property reinsurance rates are declining. Barclays predicted that U.S. midyear 2014 reinsurance renewal rates could decline by at least 10%, following declines of at least 15% at the January 2014 renewals, which will likely be a headwind for the stocks. Barclays said this reflects low global catastrophe losses and “robust demand from alternative capital.”
The report also noted that April 1 Japan property reinsurance renewals could be down as much as 15%, vs. flat a year ago.