In this week's insurance sector analysis, we discuss how a major winter storm sweeping across the southern and eastern U.S. is set to impact insurance company financials and how to identify the firms expected to report storm-related losses.
The event of the week is unfolding as we speak. A major winter storm expected to deliver extreme cold has prompted millions of people to prepare for snow, sleet, and freezing rain as it moves across the South and heads up the East Coast. Insurance companies are also preparing. Policyholders will invariably file claims for losses, including auto accidents, frozen pipes, collapsed roofs, and lost lives. Insurance companies with a large market share of the premiums written for coverage against these losses in the path of the storm stand a solid chance of incurring above-average claims and losses in the days ahead.
Overall, the macro environment remains positive other than recent employment numbers that show little sign of growth. Strong equity markets continue to power ahead and will fuel investment income, while ongoing low inflation provides visibility for writers of homeowners insurance and auto insurance (see Inflationary Pressure Drops and Other Positive Signals for Homeowners Insurance) to anticipate claim costs and adequately price business.
This week’s report walks through the combination of data and functionality available on the FactSet workstation and the steps required to identify auto insurers with large market shares in geographic regions likely to incur heavy storm-related losses. Companies with storm-related exposure through other lines of business, such as homeowners, can be identified with the same process used to identify auto insurance companies.
Our Macro Tracker table lists key economic data relevant to insurance company earnings. The right-hand column ties macro trends to the potential impact on company earnings.
Companies expected to report storm-related losses are first identified using FactSet’s Market Share functionality, which can be found by navigating to the Sectors & Insights / Insurance tabs on the workstation (red boxes below, on left). Then within the Market Share functionality, the business line and geographic region can be selected (red boxes below, on right) to identify companies featured in the tables on the remaining pages of this report.
The tables that follow show writers of auto insurance with large market shares in states expected to be in the storm’s path. The companies identified in the tables can be expected to pay a bulk of storm-related claims that will be reported over the next several months.
As reports emerge, it will be interesting to see if Progressive announces adjustments to premium rates or reserves. The data shows that Progressive maintains a large market share in each of the states in the tables. In almost all states, Progressive reported combined ratios above the peer group average.
If the storm produces a large number of claims and Progressive incurs a large portion of these claims with loss experience that reflects prior loss experience, adjustments may be forthcoming. As of last week—prior to any consideration for the impending storm—Progressive was expected to report a favorable drop in its combined ratio. Auto insurance is one of many lines of business for Progressive, and the states in the table are a fraction of the firm's total geographic footprint. But the loss experience would, at the least, support a case to request an increase in premium rates.
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