Early re/insurer results show Q2 & H1 far from catastrophe loss free

There are signs in early second-quarter and first-half results disclosures from US insurers that catastrophe losses for the period may still be impactful, despite the fact data shows they are trending lower than averages for this stage of the year.

We reported recently that the insurance and reinsurance market may face global catastrophe losses of a quantum that is a little “lighter than average” for the first-half of 2022, which was according to data from equity analysts at J.P. Morgan.

Others in the industry have been expecting a lighter than average catastrophe load for US insurers for the first-half of this year, but it seems attritional losses from numerous severe weather events may still take their toll.

At this stage its not possible to understand how beneficial insurers reinsurance coverage will be in absorbing some of the cat loss burden from H1 2022.

With aggregate attachments having risen this year at renewals, there may be more of the cat loss burden that is retained by insurers, rather than passed onto reinsurers.

Signs of higher than budgeted catastrophe losses are evident at Horace Mann and Progressive.

First, Horace Mann said this week that it “experienced second-quarter catastrophe losses well above the company’s 10-year historical average.”

“We are supporting our policyholders in the Midwest and Plains states who were affected by the multiple severe thunderstorm, wind and hail events concentrated in May,” President and CEO of Horace Mann Educators Corporation Marita Zuraitis said. “Due to the level of storm activity, we now expect our catastrophe losses for the second quarter will be approximately $44 million to $47 million, pretax.”

Horace Mann also pointed to inflation as a factor in property claims in its pre-announcement of catastrophe losses from Q2.

“As we noted on our first-quarter call, in line with the broader industry, we began to see higher near-term auto and property loss costs because of inflation,” Zuraitis commented. “Inflation is also affecting the settlement of claims from recent accident years that remain open because of pandemic-related systemic delays. In second-quarter results, we are planning to recognize the effect of those inflationary trends by adding approximately $6 million, pretax, to Property & Casualty reserves. We also continue to implement rate and other underwriting changes that address these inflationary trends.”

Inflation and how it affects claims, for lines of business such as property, could be another trend in the Q2 results season it seems.

Horace Mann reduced its full-year guidance for its P&C insurance business because of these catastrophe losses and the effects of inflation.

Second, auto and property insurance focused Progressive Corporation, which reports monthly and in June suffered catastrophe losses in its property insurance division that drove its combined ratio to 112% for the period, with catastrophes contributing 24.5 points of the ratio.

Severe thunderstorms and convective weather are the drivers, with Progressive saying they are primarily related to thunderstorms, hail, and wind throughout the United States.

For the first-half of 2022, Progressive reported a property insurance combined ratio of 113.2%, again elevated due to catastrophes that contributed 29.5 points to the total.

Progressive’s results show that catastrophes through the first-half of the year in the United States have been sufficient to drive underwriting losses, something to watch out for through the coming results season.

At this stage it doesn’t seem likely a significant share of first-half cat losses will be passed to reinsurance capital, or indeed ILS funds. But these results show some of the burden will be shared, perhaps denting certain contracts, flowing through quota shares, or eroding aggregate deductibles, where aggregate covers are in place.

Finally, the one other interesting item to watch for through the insurer and reinsurer results as they are announced over the coming weeks will be impacts to the investment side of the balance-sheet.

While not relevant to ILS covers, the investment side of the re/insurance industry can be a driver of changes in capital levels and given the volatility in financial and capital markets, with swings in interest rates, valuations, equities and bonds, there could be some interesting write-downs and losses to be realised on the financial side.

These can affect re/insurer capital adequacy if severe enough, which can then have an influence on their need for capital going-forwards, in all its forms.

That can present opportunities to savvy investors with an appetite for insurance and reinsurance linked returns, so could be another area to keep an eye on as the results are reported.

Of course, these examples are only in the US as well and there have been plenty of catastrophe losses elsewhere in the world during the second-quarter, including Europe and Asia.