Insurance This Week: Hurricane Melissa and a Deteriorating Labor Market

Insurance companies are bracing for changes in both catastrophe claims and premium revenue as Hurricane Melissa’s rampage adds to the potential impact of a deteriorating labor market. This article examines the exposure to Melissa and the impact that weakening jobs could have on future earnings.

Event of the Week

Hurricane Melissa hit Jamaica on Tuesday and as of this writing Friday morning is expected to weaken throughout the weekend. The catastrophe is not likely to generate record-setting insurance claims, but it should not be overlooked that the World Meteorological Organization has characterized Melissa as another “storm of the century.” Melissa is the latest in a growing drumbeat of extreme weather events—storms and floods once considered “1-in-100-year” occurrences—now spanning Europe, Australia, the Middle East, and Africa. We pair FactSet functionality with detailed statutory data to identify the top companies likely exposed to Hurricane Melissa and estimate how the share of total losses may be allocated among companies once loss figures begin to emerge.

Tracking Macro

This week’s macro tracker focuses on the deteriorating trend in jobs data. A continuation of this trend portends a decline in employee headcount, which will impact premium revenue for insurance companies that provide group insurance coverage to corporations. Because ongoing deterioration in jobs data would pressure group premiums, we use statutory data to identify one company’s exposure to group business. Tracking jobs data and identifying companies geared to the group business highlights a potential source of future earnings headwinds.  

Event of the Week: Details

The occurrence of once-in-a-century events should grab attention. The increasing frequency and severity of these events should, at the least, prompt a reassessment of what constitutes a 1-in-100-year event. If the current measures remain in place, the frequency of these storms should be increased. The increasing frequency of 100-year events underscores the importance of not relying on historical severity and frequency experience to price insurance risk.

While total losses related to Hurricane Melissa have not been collected and released, FactSet data and functionality is available to assess a company’s potential exposure to such an event based on premium market share by geography and line of business. The figures below show the market share for homeowner and auto premiums written in Puerto Rico. FactSet market share functionality, driven by data pulled from statutory statements, shows that UIC Insurance Group, a subsidiary of The Universal Group of Cos., writes over half of these total premiums and can be expected to share in a similar percentage of total homeowner and auto losses.

Looking into Universal Group’s UIC subsidiary that writes the home and auto business in Puerto Rico, the following exhibit (the entity’s State / Line statutory report) shows that home/auto represent a vast majority of the company’s personal lines, and personal lines represent a larger proportion of business than the company’s commercial lines.

The final slice of premium datal is from schedule P, which includes detail on the level of ceded premiums. Ceded premiums could help UIC reduce its losses.

Tracking Macro: Details

Our macro focus this week is on the deteriorating trend in recent jobs numbers. 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 right-hand column of our Macro Tracker (below) indicates the unemployment rate impacts insurance company earnings through its impact on payroll-based premiums: fewer people working for corporations, fewer employees on the payroll signing up for employee-provided insurance. The impact of deteriorating non-farm payroll data, similar to the unemployment rate, also influences payroll-based premiums.

Macro tracker

Source: FactSet

The following companies have recently announced layoffs, which contribute to the declining trend seen in the unemployment and non-farm payroll numbers.

• Amazon.com -said this week that it would cut 14,000 corporate jobs, with plans to eliminate as much as 10% of its white-collar workforce eventually.

• United Parcel Service has reduced management by about 14,000 positions over the past 22 months

• Target said it would cut 1,800 corporate roles.

Others

• Rivian Automotive

• Molson Coors

• Booz Allen Hamilton

• General Motors

• Paramount/Skydance

To assess the potential impact on a company’s total premiums, detailed premium data is available in the Operations by LOB. 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.

Current estimates for MetLife, the parent of Metropolitan Life Insurance Co., anticipate an increase in 3Q premiums vs 2Q. In fact, the expected uptick increased slightly over the past month, despite the deteriorating macro jobs trend. While many factors could drive premium growth, the macro job trend poses a headwind that 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.