During an Oct. 26 webinar, S&P Global Ratings Senior Director John Iten stated that he has always believed that a “perfect storm” of multiple events would be required to warrant a downgrade of the US P&C industry.
That storm has now arrived, prompting S&P to downgrade the sector from stable to negative.
“We’re seeing massive disaster losses,” Iten said. “And, of course, the surge in loss cost inflation, which is wreaking havoc on underwriting performance. That, along with a sustained decline in capital markets, is eroding the value of investment portfolios.”
Iten stated that the rating of the US P&C industry has been stable for at least ten years and that it is not frequently changed. The shift to a negative outlook means that S&P Ratings now anticipates more negative than positive rating actions for companies in the coming year.
The shift was also caused by higher claims costs, particularly in personal lines, which Wells Fargo analyst Elyse Greenspan had identified as a source of concern.
“We are also cautious on the personal lines sector due to the sector’s elevated loss trend, which has resulted in weak results this year,” Greenspan said in an Oct. 25 note. Greenspan is particularly concerned about The Allstate Corporation, which she believes has significant capital issues that investors have not “fully appreciated.”
On Oct. 28, Fitch Ratings revised Allstate’s rating outlook to negative from stable, citing a “sharp deterioration” in its underwriting results for the first nine months of the year, as well as adverse revisions to prior reserves that fell short of expectations.
Despite the negative sentiment, Allstate’s stock rose 5.25% for the week ending Oct. 28.
Earnings from P&C
Several other high-profile P&C carriers saw their stock prices rise this week following the release of third-quarter earnings.
Chubb Ltd. reported results that showed a significant drop in net income year over year. For the period, the insurer recorded $1.16 billion in pretax catastrophe losses, net of reinsurance and including reinstatement premiums, with Hurricane Ian accounting for $975 million of that total.
Chubb’s stock finished up 8.45%.
During its earnings call, Florida-based insurer Universal Insurance Holdings Inc. reported that legislation passed by Florida lawmakers aimed at limiting excessive litigation against insurers is having a positive effect in the aftermath of Hurricane Ian.
The stock of Universal rose 7.01% last week.
Renewal Prospects
As the end of the year approaches, several companies have warned that reinsurance renewals on January 1 will most likely be “rough.”
This week, insurance broker Brown & Brown Inc. was the latest to issue a similar warning. The company reported third-quarter results that included a year-over-year increase in net income, as well as a $15 million negative impact from profit-sharing contingent commissions and a $11.5 million loss from capitalized captive insurance facilities. Both were related to the consequences of Ian’s estimated insured property losses.