A majority of the largest publicly traded US property and casualty insurers are set to report year-over-year gains in both earnings and revenues in the third quarter, as well as improvement in combined ratios compared to a year ago.
Of the 20 largest P&C and multiline insurers by total assets that trade on major US exchanges, 17 are expected by sell-side analysts to record higher earnings year over year, while 15 should see revenues rise compared to a year ago, according to an S&P Global Market Intelligence analysis.
Nine insurers are expected to record quarter-over-quarter declines in earnings per share, and the same number of companies are projected to see sequential drops in revenues.
CFRA Research analyst Cathy Seifert said in an email that interest in the P&C space will likely be focused on the degree to which commercial lines insurers are able to maintain pricing power, while the personal lines space will be looking at claim cost inflation, particularly in the auto sector.
"To the degree that personal and commercial auto claim trends ease, investors will likely reward publicly traded auto underwriters by bidding up their shares," Seifert told Market Intelligence.
While personal lines insurers are still feeling pressure from inflation, UBS analyst Brian Meredith said in a research note that earned price increases for personal auto insurance will likely be in line with or in excess of loss trends, which should result in improving underlying loss ratios, both year over year and sequentially.
The Travelers Cos. Inc., which kicks off the reporting period for P&C companies on Oct. 18, is expected to report EPS of $3.05, up both year over year and quarter over quarter. Among the questions analysts hope to have answered are if Travelers has continued the increase of commercial insurance prices it reported in the second quarter and if the underlying results of the company's personal lines have reached "a positive inflection point," Piper Sandler analyst Paul Newsome said in a research note.
Of the 20 insurers in the analysis, only Old Republic International Corp., Assured Guaranty Ltd. and Horace Mann Educators Corp. are expected to post year-over-year declines in earnings.
Companies projected to have sequential decreases in earnings are American International Group Inc., Chubb Ltd., CNA Financial Corp., Arch Capital Group Ltd., Markel Group Inc., Assurant Inc., Cincinnati Financial Corp., AXIS Capital Holdings Ltd. and Old Republic.
Will pricing push pay off?
Newsome said one of the major questions that needs to be answered is whether or not personal lines writers start to see improvement on both an underlying and absolute basis in their results.
"They pushed through a ton of pricing and claims-cost inflation just kept overwhelming [them] in the first half of the year," Newsome said in an interview. "So the question will be whether or not we finally reached the inflection point with the price increases."
The level of claims inflation will be a telling factor for personal lines carriers such as The Allstate Corp., which has recorded five straight quarterly losses. The analysis projects year-over-year and sequential increases in EPS for the third quarter, as well as improvement in its combined ratio to 103.76% from 117.6% in the second quarter and 111.6% in the 2022 third quarter.
Among the factors Newsome cites that could lead to an easing of claims inflation are some moderation in used car prices and new car parts. Newsome said that while they are still rising, they aren't "spiking like they were before."
The one negative Newsome cites for P&C carriers is that investment marks will be "pretty rough for the quarter."
"It was a tough equity market quarter, and it was a tough bond market quarter," Newsome said. "So reported book values will be under some pressure in the quarter."
