"Loss ratios are still likely to benefit from reserve releases although at a slower pace than 2009," said KBW analyst Cliff Gallant, in a Q1 Property & Casualty Earnings Preview note. “We believe the top-line will continue to be a challenge as competition remains tough and underlying exposures have not grown. We expect investment portfolios to report a good quarter and that the industry was active with capital management.”
The first quarter saw a number of notable loss events including the Chilean earthquake (estimated to have incurred losses as high as $10 billion), Windstorm Xynthia in Europe, severe winter weather in the US Mid-Atlantic and rain, snow and wind in the US Northeast. Even the southern US states saw snow this winter.
KBW has reduced earnings estimates for a number of companies which have predicted losses related to these events and has made its own estimations of losses for those who have not.
Despite the catastrophic events, KBW’s full-year 2010 earnings per share estimates are still within the “normal” range. 2009’s low level of loss events is considered the anomaly, not 2010’s high activity. As such, the industry should be able to handle the losses.
KBW is looking at the longer-term strategy of strong franchises that have long-term growth prospects and are trading near book value. KBW’s top picks include Ace, Arch Capital Group, Allied World Assurance Holdings, Chubb Corporation, and Tower Group.
In addition, KBW expects continued mergers and acquisition activity with smaller regional US-based insurers to be targeted.