Earlier this week, the third quarter for P&C insurers and brokers ended. Investors, companies, and industry observers continued to revisit the reserving and pricing versus loss costs discussions. The impact of catastrophe losses was also foregrounded, as several carriers' results reflected the impact of hurricanes Helene and Debby, as well as preannouncements for Hurricane Milton, which will impact fourth-quarter results.
The chart below shows the stock performance of select companies one day after they reported earnings. Company-specific factors largely drove the outperformance and underperformance we observed at the extreme ends.
Similar to last quarter, Goosehead’s stock rose thanks to a modest operating EPS beat and revised guidance. On the other hand, James River’s sell-off was, in large part, due to poor results and the impact of the pro forma balance sheet from an ADC with Enstar.
By segment, we can see that most brokers performed well, with only Marsh McLennan and AJ Gallagher falling slightly post-earnings as both companies continued their walk-down from high-single-digit to mid-single-digit organic growth.
Reinsurers/hybrids largely underperformed, with only SiriusPoint and Greenlight rising after reporting.
Arch Capital, Everest, and Axis all fell between 3% and 6%. A number of factors adversely impacted the cohort. These included less enthusiastic commentary surrounding January 1 renewals due to Milton being tamer than initially expected, as well as broader concerns surrounding casualty reserves. Other company-specific issues were also at play, including a jump in Arch Capital’s underlying loss ratio and a revised 2025 combined ratio expectation from RenaissanceRe due to casualty reserving pressures. Everest’s sell-off came from revised language around year-end reserving.
Commercials fell as well, with only Travelers rallying 9% on sizable street estimate beats, including the lack of substantial general liability reserve adjustments.
Most personal carriers’ stocks improved as the cohort continued to report year-over-year improvements in profitability.
Overall, the median price shift for the select companies we considered was -0.6%, or 0.8 points lower than the 2.0% median price shift we observed last quarter.
The chart below shows estimate revisions for select P&C insurers. The Q4 consensus estimates have fallen sharply over the past several weeks. This dip was driven in part by loss estimates for Hurricane Milton, a fourth-quarter event. Additionally, fourth-quarter results will include deeper dive reserving work, which will likely lead to reserve adjustments.
We also show the estimate revisions for select insurers for 2025. Over this past year, the estimates have been modestly revised down.
Brokers' earnings estimate revisions, as shown below, ticked up over the past several weeks. This suggests a generally positive outlook on the cohort for the remainder of the year, which may potentially stretch into 2025.
Looking back on the results by segment, we believe the following were the most relevant takeaways:
Casualty reserve discussions continued as reserve releases offset charges across troubled lines
In our third quarter preview, we expected the discussion around casualty reserve adequacy to pick up as we entered the latter half of the year, during which many insurers conduct deeper-dive reserve studies.
Travelers kicked off the earnings season, reporting net favorable prior-year reserve development business-wide and no material adverse development from soft-market years or the latest accident years.
The Hartford, AIG, and Chubb reported similar reserving actions: favorable prior-period reserve development that was partially offset by adverse casualty reserve development. Additionally, The Hartford joined Selective in reporting adverse development in commercial auto liability, a line that received renewed attention this quarter, which we discussed at length in a prior note.
Broadly, reserve releases for the cohort remain elevated at the nine-month market and ahead of full year 2023. In a recent analysis, we posited that such elevated releases for this cohort and others have set the stage for a trend reversal as we head into Q4 2024 and beyond.
Beyond reserving, most carriers in our select large commercials cohort reported improved profitability and mid-single-digit top-line growth. Travelers, in particular, saw a 7.8-point improvement in their combined ratio year-over-year, driven by markedly improved underlying performance across the business. The table below provides an overview of these metrics.
We remain cautious about these results, as we believe the industry is still underestimating the ultimate losses due to an evolving loss-cost climate.
E&S continues to drive specialty growth, but quality is a question mark
As the first few companies began to report in the opening weeks of the Q3 earnings season, we noted that specialty was continuing to outperform its regional and large-cap commercial peers. As earnings continued, however, the rest of the cohort did not necessarily demonstrate the same strength.
While most of specialty had a good quarter, the exceptional value creation of early reporters such as RLI and Kinsale stands out.
One notable standout from the rest of the group is James River, which reflects corrective actions, including a new adverse development cover and equity raise via Enstar.
The growth and profitability that specialty carriers have consistently enjoyed continues to be driven primarily by excess and surplus lines. We question the continued longevity of E&S expansion and are cautious about how much longer specialty carriers can continue to rely on the space as a source of growth.
Regionals’ performance was mixed
Performance among the select regional insurers we observed was mixed. The cohort posted significant top-line growth, with Cincinnati posting near 20% growth. Underwriting profitability waned somewhat for Selective and Cincinnati, both of which faced low-single digit upticks in their overall combined ratios due to weather-related catastrophe losses, including Hurricane Helene. However, the underlying performance of both companies improved.
Additionally, both Selective and Cincinnati have been leaning into the E&S market over the past three years, with around 10% of their direct written premium in E&S. Though the non-admitted market offers insurers much greater flexibility with regards to pricing risk, the question we are looking to answer over the coming months is whether this growth is sustainable.
Personal lines continue to outperform as personal auto results improve materially
This sub-sector again performed well vs other sectors in P&C insurance, despite slightly elevated catastrophe losses due to Hurricane Helene. This follows several quarters of rate and underwriting action, with personal auto in particular continuing to experience significant year-over-year improvements.
The table below shows sizable double-digit shifts in both top-line and underwriting profitability. However, the question for the cohort remains whether their current earned rate will outpace loss trends as well as whether the industry has truly learned its lessons from the past.
Brokers reported largely as expected, with mid-single-digit organic growth
Brokers had another good quarter. The majority of the cohort again reported mid-single-digit organic growth of around 6%, while Brown & Brown posted double-digit organic growth.
Marsh and WTW’s strong growth in their broking businesses was modestly weighed down by lower organic growth in consulting and other non-P&C operations. Aon experienced a sequential acceleration to 7% organic growth— outpacing Marsh, AJ Gallagher, and Willis Towers Watson in the quarter— due to net new business from existing clientele as well as strong retention.
Additionally, Brown & Brown benefitted again from double-digit growth in its MGA business.
Reinsurers/Hybrids reported strong performance, but questions about renewals and casualty remain
The 2024 Atlantic hurricane season began ominously, with Hurricane Beryl becoming the earliest-forming category five hurricane on record. Beryl was later followed by Helene, which caused unexpectedly considerable flood damage, and Milton, which took an unusual path and made landfall on Florida’s Gulf Coast.
While Milton’s damages seem to have been less than expected (and will be a matter for Q4 earnings), the devastation of Helene and Beryl has dominated the reinsurance conversation for this quarter. The true impact that this hurricane season will have on the market remains to be seen, but some hardening in property-catastrophe lines could be on the horizon for hurricane-exposed states.
While the problems of writing (re)insurance in those areas helped to push many reinsurers to hybrid business models, the potential for attractive pricing could lead companies to continue to evaluate short-tail opportunities.
In our discussion on hybrids earlier this month, we noted this through the steady rebounding of Everest and Arch’s reported hurricane PMLs.
As we look ahead to global and US national renewals on January 1, these companies' capital positioning decisions will be in the spotlight. The main question is how Arch, Everest, and RenRe will deploy capital at January 1 and keep dry powder for the remainder of the year.
In summary, we view this as a mixed quarter. The focus now turns to the year-end reserving review, which could lead to earnings surprises in the fourth quarter.