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Catastrophes hand property/casualty insurers a ‘difficult’ quarter: Analysis

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Property/casualty insurers face a “difficult fourth quarter,” reflecting the impact of several natural catastrophes on underwriters, according to an analysis released Friday by Sandler O’Neill & Partners LP.

The analysis by the Chicago-based investment bank noted that the 2018 fourth quarter looks like a “relatively heavy catastrophe loss” period. “Not only did the fourth quarter include Hurricane Michael but also the California wildfires and losses from early winter storms in the Northeast and Midwest,” it stated.

Sandler O’Neill pointed out that some insurers have already announced catastrophe loss estimates. “The losses announced have included a wide range of estimates. One interesting trend of note is some companies have noted that expected losses for Hurricane Michael have trended towards the high end of estimated ranges previously provided,” according to the report.

Looking ahead, the report said that “with limited price increases in commercial insurance, virtually no increases in reinsurance and a moderately increasing claim inflation environment, we see limited earnings growth in the next several years for most of the insurers we follow, excluding the volatility related to catastrophe losses. That is not to say that on an absolute basis returns in the fourth quarter will not continue to be positive.”

The report also noted that merger and acquisition activity increased in 2018, mostly centered on Bermuda-based reinsurers. Activity picked up in the second half of the year, when, for example, Hartford Financial Services Group Inc. announced its acquisition of Navigators Group Inc.

“We still think investors will be interested in just how many insurers become willing sellers and if the U.S. tax reform created active buyers from the U.S. domestic insurers,” said Sandler O’Neill.