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Severe weather, weak investment income to strain first-quarter results


Severe winter weather and disappointing investment income is likely to impact insurers’ first-quarter results, according to a pair of analyses released Monday.

Results for the first quarter of 2014 will show weaker underwriting performance, according to Philadelphia-based Drexel Hamilton L.L.C., which noted Aon Benfield Group Ltd. estimate that winter storms will result in about $2.6 billion in insured losses during the first quarter.

“The losses will compare with very light catastrophe activity in the comparable quarter last year, so we expect to see weaker underwriting performance” in first-quarter property/casualty results, said Drexel Hamilton in its report. “Net investment income will likely remain challenged due to continued low interest rates, but solid realized gains and share buybacks should still produce reasonable bottom line earnings this quarter.”

In “1Q14 Preview: Bad Weather, Low Yields, Softer Pricing — What Could Go Wrong?” Keefe Bruyette & Woods Inc. analysts said while they expect most reinsurers to report solid first-quarter underwriting results, “that moderately happy news is likely to be offset by continued pricing deceleration and a slightly flatter yield curve, including a lower 10-year Treasury yield.”

New York-based KBW said that aside from catastrophic losses, the property/casualty insurance industry “tends to evolve pretty slowly,” so most of the industry’s key issues are similar to those of prior quarters. These include significant reinsurance rate decreases and decelerating commercial rate increases; still-low loss-cost inflation; generally low interest rates; and modestly weather-impaired economic growth.