In this week’s insurance sector analysis, we explore both the event of Citizens Insurance Corp.'s bump from the top spot in Florida and the macro factor of how the deteriorating trend in jobs numbers may have contributed to MetLife’s revenue shortfall vs. expectations.
In a turn of events, Citizens Property Insurance Corp. has fallen from its position as the largest carrier in Florida. Citizens was established in 2002 as a government entity to function as an insurer of last resort after the private insurance market ceased to function properly due to escalating costs focused on homeowners and auto insurance. The two drivers underpinning Citizen’s fall—a combination of legislative reform and lower rates—are good news for the industry and consumers, as evidenced by companies now entering the market with competitively priced coverage.
Favorable equity markets should continue to provide a tailwind for investment income generated by both life and P&C companies. The favorable impact will benefit P&C companies more than life companies given the higher weighting of equities typically owned in the investment portfolios of P&C companies.
Unfavorable job data could lead to a decline in life companies' group premiums. A continuation of this trend portends a decline in employee headcount, which would impact premium revenue for companies with a concentrated book of group insurance sold to corporations.
Ongoing inflation will likely push up the combined ratios of P&C companies. Expenses to settle claims for auto and homeowner policies, for example, are likely to be higher than expected given tariffs and the impact on higher prices for imported auto parts and lumber needed to settle auto and homeowner losses.
Citizens experienced underwriting losses in over 80% of the periods that span 2014 through 2024. The fact that Citizens, the largest writer in Florida, has been bumped from its position by companies entering the market is a strong indication that the Florida market has taken a turn.
Two of the companies writing business are Universal Property & Casualty Insurance Company and State Farm Florida Insurance Co. The premiums written by the two companies in Florida, as shown in the State/Line statutory exhibit, account for all or almost all of total company premiums written. In both cases, for ’24 Florida business showed a combined ratio below 100.
Our Macro Tracker lists key economic data relevant to insurance company earnings. The right-hand column ties the macro trend to the potential impact on company earnings.
This week deteriorating trend in jobs numbers remains our focus and may have contributed to MetLife’s revenue shortfall vs. expectations (read below). Throughout the year, nonfarm payroll numbers have fallen while the unemployment rate has ticked up. While slight, the most recent unemployment released yesterday was revised up 10bps to 4.35%. Both the uptick in the unemployment rate and the drop in nonfarm payrolls are shown in the graph below. Note the most recent data is estimated due to the ongoing government shutdown.
Source: Bureau of Labor Statistics
The following companies have recently announced layoffs, which has contributed to the declining
trend seen in the unemployment and non-farm payroll numbers and will have a negative impact
on group premiums: Amazon, Autodesk, Hewlett Packard, General Motors, Molson Coors, Paramount/Skydance, Rivian Automotive, Starbucks, Target, UPS.
To assess the potential impact on a company’s total premiums, FactSet provides detailed premium data reported in the Statutory Operations by LOB report. In the case of Metropolitan Life Insurance Co., MetLife, Inc.’s largest subsidiary, the impact on declining jobs would impact the premiums of the three group businesses highlighted below. In the case of this subsidiary, the data in the Operations by LOB report shows that a decline in group premiums would have a meaningful impact on total premiums.
As the jobs numbers deteriorated in 3Q, downward pressure increased on MetLife’s group premium revenue and very likely contributed to Met’s 3Q revenue shortfall vs expectations reported earlier today. The table below shows that revenue estimates were revised upward over October, despite the weakening jobs numbers.
Met’s statistical supplement shows that the revenue decline was, at least in part, attributed to a decline in 3Q group benefit premiums vs. 2Q, albeit slightly. While many factors could drive MetLife’s total revenue growth, the macro job trend poses a headwind group benefit’s contribution to total premiums and should not be overlooked.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.