Most property/casualty insurers and reinsurers will likely have strong 2014 third-quarter results, thanks to the absence of major hurricanes and below-average catastrophe losses, analysts at Keefe, Bruyette & Woods predicted in a new industry update.
With that in mind, KBW said it sees reinsurers vulnerable to the biggest pricing pressures (such as those most exposed to the Southeastern United States) as the likely leaders in terms of Q3 earnings.
Overall, KBW said the expected healthy earnings results should lead to broad share repurchases. Within this trend, KBW urged investors to focus their spending specifically “on more attractively priced reinsurers” such as PartnerRe, and XL Group, among others.
“Capital generated from [2014 third quarter] earnings outperformance (compared to initial expectations) can fuel additional share repurchases, especially given the prolonged absence of deployment opportunities within the industry,” KBW concluded “We think this is most positive for reinsurers trading below book value.”
On the other hand, lower-than expected hurricane/catastrophe events could harm reinsurers focused primarily on property-catastrophe reinsurance instead of other lines, KBW said.
“While many reinsurers think (or hope) that property catastrophe reinsurance rates are bottoming, another hurricane-free year probably pressures pricing, whether it’s due to incremental capital generation or the notoriously short-memoried industry’s sense of security,” KBW noted. “This is a negative for reinsurers disproportionately focused on property-casualty reinsurance.”