TD Cowen released a 3Q24 property and casualty (P&C) insurance preview, outlining its expectations for the industry. The firm is generally positive on third-quarter results, anticipating favorable pricing with minimal impact from the recent interest rate cut.
Mixed catastrophe (cat) losses from Hurricane Helene are expected, and concerns remain about prior-year development in recent accident years.
TD Cowen suggests the P&C hard market may be nearing its peak, as commercial pricing decelerated slightly in the third quarter. MarketScout reported a 3.8% increase in commercial pricing, down from 4.4% quarter-over-quarter, while IVANS reported a 6.9% increase through August, compared to 7.1% the previous quarter. Loss trends are expected to remain stable, with most lines seeing mid- to high-single-digit increases.
The Federal Reserve's September interest rate reduction of 50 basis points is expected to have a limited effect on third-quarter net investment income (NII) and brokers' fiduciary income.
However, TD Cowen noted that rising portfolio yields may slow, and the 10-year US Treasury yield recently reached 4% following a stronger-than-expected jobs report, adding uncertainty to future investment income growth.
The personal auto insurance market is seeing a return of competition, as margins exceed target profit levels. National carriers like Progressive and, to a lesser extent, Allstate, are leading the charge, while regional insurers are still working to restore profitability.
Kemper is well-positioned, benefiting from scale in the non-standard auto segment, where competition from regional carriers is increasing.
Insurance brokers remain in a defensive position, despite decelerating pricing and moderating inflation. TD Cowen expects organic revenue growth targets to hold in the third quarter, with Aon and Willis Towers Watson (WTW) seeing the most upside. Aon's and WTW's P&C broking segments are projected to achieve organic revenue growth of 5% and 7%, respectively.
Hurricane Helene is expected to have minimal impact on reinsurers, as attachment points have risen in recent years. Primary insurers most exposed include Allstate, Berkshire Hathaway, Chubb, Progressive, and Travelers. Industry loss estimates range between $8 billion and $14 billion.
Hurricane Milton, which made landfall in early October, is expected to cause more significant losses, with estimates ranging between $25 billion and $50 billion, though less severe than initial projections for a direct hit on Tampa.
TD Cowen reiterated its top picks for the sector, favoring Arch Capital Group, Hartford Financial, and Kemper. The firm also initiated coverage on Axis Capital, citing the company's conservative fourth-quarter casualty reserve charge, a new management team, and a renewed focus on specialty underwriting.
TD Cowen expects this to result in multiple expansion, as Axis currently trades in line with reinsurers rather than its specialty peers.
Hurricane Milton made landfall on Oct. 9 near Siesta Key as a Category 3 storm, having weakened from its peak at Category 5. While early loss estimates anticipated triple-digit billion-dollar losses from a direct hit on Tampa, Milton’s landfall approximately 70 miles south of the city resulted in insured loss estimates between $25 billion and $50 billion.
TD Cowen's analysis provides estimated gross losses to carriers before accounting for reinsurance structures.
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