Going into the first quarter earnings season there were many areas of focus for investors in US-listed (re)insurers.
For a start, Q1 was an active quarter for cats – especially US convective storms including tornadoes – so analysts expected somewhat elevated cat losses feeding through to earnings.
Potential for reserve strengthening in D&O – in the context of the March banking crisis – was also expected to be a feature in earnings for some commercial writers.
Investor focus was also decisively on the pricing cycle, assessing the impact of inflation on loss costs and the response of rates across commercial and personal lines, with auto loss trends especially again coming under the spotlight.
On the balance sheet side, the focus was on the potential for the gradual unwinding of the headwinds of 2022, with higher fixed income yield and equity gains in Q1 having a positive impact on mark-to-market valuations.
As anticipated, the interaction of these multiple factors gave way to a very mixed quarter in terms of results and subsequent share price paths for individual stocks.
The Insurer’s comparison of actual combined ratios and earnings per share (EPS) against analyst consensus – as provided by S&P Capital IQ Pro – demonstrates the extent of the mixed nature of the Q1 results season.
Across the 34 (re)insurers analysed, there is a noticeable balance of good and bad performers evenly spread across all different peer groups and with no particular correlation with market capitalisation.
Share price reactions also appear to align well, with the most positive surprises in combined ratio and EPS rewarded with the highest stock gains (and vice versa for the underperformers).
At the top of the list of positive surprises in the US/Bermuda Q1 reporting season lie two coastal insurers in Heritage and HCI Group.
Both revealed results well ahead of analyst expectations, with their shares gaining 14.6 percent and 18.9 percent, respectively, the day after their earnings announcements.
After delivering a 6.3 percentage point beat on combined ratio and a 390 percent beat on EPS, Heritage has accelerated its upward trend and is now trading 52.4 percent above its 4 May closing price.
The Tampa-based firm reported a 21.9 percent increase in average premium per policy over Q1 2022.
HCI Group, meanwhile, recorded the largest EPS beat across all reporters of the Q1 season. The company delivered a combined ratio that was 9.3 points better than expected, and EPS that surpassed expectations by 971 percent.
The Florida carrier attributed the improvement to underwriting and rate actions as well as reform in its home state, with CEO Paresh Patel telling analysts the “days ahead are even brighter”.
It also detailed progress on the launch of new carrier subsidiaries to address what it sees as the opportunity in the Sunshine State.
Nasdaq-listed International General Insurance topped the list of combined ratio beats with a result of 78.4 percent, which was 15.4 points better than expected (although 6.6 points higher than in Q1 2022).
Its share price rose 5.5 percent at the next close following the Tuesday 16 May after-markets release and was 15.5 percent up as of Wednesday’s close.
Meanwhile P&C giant AIG impressed with another quarterly earnings beat thanks to relatively light cat losses and continued improvement in its general insurance operations. It beat consensus on combined ratio by just 0.2 points but the beat on EPS was 15 percent.
It was rewarded with a next-day price reaction of 7.8 percent and is up 11.9 percent to date.
E&S specialist Skyward Specialty also delivered results which were well-received by analysts. There were no positive surprises on EPS but the company delivered a 1.3 point combined ratio beat.
Its share price rose 11.1 percent on the day following the announcement, as CEO Andrew Robinson highlighted that growth in its property portfolio was largely driven by rate.
ProAssurance was the unquestionable underachiever of the Q1 reporting season.
The Birmingham, Alabama-based insurer saw its shares slump by 22.3 percent after reporting a flurry of heavy medical professional losses.
It delivered a combined ratio of 113.9 percent, which was 7.4 points worse than expected, and an EPS miss of 113.9 percent.
As of Wednesday’s close, the stock was trading 32.4 percent down from its pre-earnings date level.
Contrasting with the good performance of peers Heritage and HCI Group, Universal Insurance Holdings recorded a 4.0 point miss on combined ratio and a 15 percent miss on EPS.
Reacting to these results, shares in Universal plunged 17.8 percent on the next trading day.
Meanwhile commercial insurer United Fire Group released a combined ratio of 104 percent, up from 89.5 percent in Q1 2022, and 6.0 points worse than anticipated by analysts. Its EPS was also 85 percent worse than expected, prompting an immediate share price reaction of 10.1 percent, and climbing to 15.1 percent as of Wednesday’s close.
Personal lines giant Progressive was also one of the big disappointments of the quarter. On 13 April it released first quarter results which included a 3.8 point miss on combined ratio and a 51 percent miss on EPS.
The Ohio-based insurer’s president and CEO, Tricia Griffith, said the reserve strengthening “as a result of claims settling for more than reserved” added 4.6 points to the combined ratio in this year’s first quarter, compared with 1.6 points in Q1 2022.
The share price – which fell 5.6 percent on the day prior to the announcement – slipped a further 2.5 percent after the release.
Finally, WR Berkley was also among the underperformers of the reporting season.
Share in the commercial insurer slumped 9.2 percent after the company reported operating EPS of $1.00, 19 percent below analyst consensus.
The company also reported a combined ratio of 90.6 percent, which was 1.7 points weaker than anticipated.
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