Insurers of commercial lines have proved to be the insurance industry's earnings stars in the first quarter, according to Bank of America.
Brian Meredith, a securities analyst for the bank, said that 80 percent of commercial lines insurers in his coverage universe have reported upside surprises due to good underlying underwriting results, reserve releases and light catastrophes losses.
He said Arch Capital, Renaissance Re and Montpelier Re performed above expectations in net premium growth and earnings, while the rest of the insurance universe had less than stellar growth.
“Most companies have been forced to pare back exposure to hurricane losses, and pricing has been flat to down for most lines of business,” Mr. Meredith wrote.
While all sectors performed solidly, commercial writers took the lead, he found.
St. Paul Travelers and HHC Insurance both produced upside earning surprises on better than expected loss ratios, and in the case of the former, also better than expected investment income.
“Also somewhat surprising, most of the commercial lines insurers saw sequential improvement in their accident-year loss ratios, excluding catastrophes,” Mr. Meredith wrote.
Among the reinsurers, Renaissance Re Holdings Ltd. stood out for reporting strong growth in premiums “as it had balance sheet capacity to take advantage of the dislocation in the hurricane-exposed property reinsurance market,” Mr. Meredith wrote.
“Most reinsurers significantly cut back exposure at Jan. 1, 2006 renewals, especially in marine, energy, and property-catastrophe and retrocession,” Mr. Meredith wrote.
In personal lines, competitive pressures continued to hold back net premiums written growth and policies in force growth, while catastrophe exposure management is hurting the former, Mr. Meredith wrote.
For the brokers, Marsh reported improving growth, but Aon was flat and Willis was decelerating. “All of the companies cited weaker than expected revenue growth in their reinsurance brokerage as clients raised retentions or pushed off buying parts of their programs,” Mr. Meredith wrote.
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