Time for Giving Thanks?

Now that Halloween has passed and the election season is winding down, it’s time to focus our national attention on Thanksgiving, arguably the most universally appreciated national holiday. After all, what’s not to love? Turkey, dressing, football – you bet!

Although the economic news over the past four years hasn’t always been something we have wanted to give thanks for, little by little many economic indications now seem to be moving in the right direction.

For instance, one recent report on the insurance industry delivered mostly upbeat news. Analysts at financial services firm Keefe, Bruyette & Woods offered a third quarter earnings preview in October based on insurers’ earnings per share that are largely positive, under the title “Better Than Feared.”

The report, it should be noted, came out well before the October surprise – or Frankenstorm – that blasted into Atlantic City, N.J., on Oct. 29. The economic blow from Hurricane Sandy is expected to be severe but “short term.” A.M. Best noted that the property/casualty insurance industry is well capitalized to handle an event of this type and that the National Flood Insurance Program will bear the brunt of the financial impact.

Keefe, Bruyette & Woods reported that prices are rising, and the report’s authors expect pricing pressures to remain modestly upward, with U.S. commercial lines likely up in the 6 to 7 percent range. In reinsurance, the expectation for Jan. 1 is generally flat, including catastrophe lines.

“One potentially bullish point for the sector could be signs that the pricing improvements have outpaced loss trends with the benefit falling to the bottom line,” the report states.

Reserve pressures are growing, and the report expects reserve releases to continue to slow. “A year ago in 3Q11, we saw 5.3 percent of reserve release benefit and we expect at least a point of deterioration from that level,” the report states. “We also remain generally cautious on the companies that have already reported some reserve leakage in 2012 as managements attempt to put issues fully behind them.”

As for the brokerage business: “We expect mid- to upper-single-digit revenue growth driven by gradually improving organic trends as well as robust (merger and acquisition) activity, particularly for the middle-market brokers,” the report states.

Overall it seems there are economic signs to be thankful for, or as the report states: “We expect the P&C sector to have a good 3Q12 earnings season.”

Again, that report came out well before Hurricane Sandy, so it will be interesting to see what impact, if any, “Frankenstorm” will have on prices and profits going forward.