The biggest themes going into Q3 earnings were Hurricane Milton’s impact on fourth-quarter results, reserve adjustments and pricing.
The level of reserving adjustments coming out of earnings was modest. We believed the bigger takeaway was to wait for year-end reserve reviews and consequent adjustments.
With earnings starting next week, we expect a continued focus on long-tail reserves, with scrutiny on whether we start to see adjustments for recent accident years. We also expect the conversation to touch on the development of Milton losses from the initial estimates and early estimates of insured losses from the California wildfires.
For additional insights for 2025, see our P&C insurer and broker outlooks.
The projected insured loss impact from these wildfires has continued to worsen in recent days, with most estimates in excess of $30bn and some forecasting $40bn-$50bn. Losses will skew heavily to personal lines and reinsurers, with commercial lines losses a fraction of those from personal lines.
For this preview, we reviewed the group to see which companies in different sub-groups have historically taken charges in the fourth quarter and which ones do not over a seven-year period.
We also examined the overall trend line of reserve developments and how this has changed over prior years. We found that year-end reserve releases have diminished over time for commercial, specialty and reinsurers.
Chubb and Travelers tend to release in the fourth quarter among the larger commercials. For specialty writers, American Financial Group, RLI and Kinsale released significantly in past fourth quarters.
On the reinsurance side, Arch and RenaissanceRe stood out as releasing significant amounts of reserves. The rest of the companies in this cohort either had modest adverse or favorable developments. We have also included data on personal, regional and Florida-predominant players later in the note.
The chart below shows the shift in estimates over time for the fourth quarter, reflecting Hurricane Milton. We would also highlight 2025 estimates, which have trended down but will likely shift meaningfully once the eventual impact of the California wildfires becomes clearer.
Which companies historically release or add to reserves in conjunction with fourth-quarter earnings?
Reserve releases or additions can be spread out during the year depending on developments in business lines and the timing of reserve reviews. Reserve reviews generally happen either at mid-year, or on an annual basis. Therefore, the year-end review numbers are reflected in the Q4 results.
We decided to look at insurance companies and their fourth-quarter developments over a seven-year period. Admittedly, this is a crude way of anticipating what will happen this quarter.
Nonetheless, better companies have a more established reserving pattern compared to companies struggling with changes, exits, or re-underwriting efforts.
The tables below show Q4 development as points on the combined ratio.
As mentioned above, the companies that have consistently released reserves include Chubb and Travelers among the larger commercial insurers; American Financial Group, RLI and Kinsale among the specialty names; and Arch and RenaissanceRe on the reinsurance side.
The chart below looks at prior-period development (PPD) as points on the combined ratio from a segmental view as opposed to a company view. As expected, large commercial carriers' releases have narrowed, and the same is true for several other segments as well.
We expect these numbers to continue to narrow this quarter and would not be surprised if this trend worsens in subsequent quarters.
These numbers have remained at less than 1% over the past several years and have not had a meaningful impact on most companies or the industry’s capital or equity positions.
The earnings calendar is shown below. Year-end earnings are generally more spread out than those of the first three quarters of the year. Travelers and RLI next week will give us an early look at what to expect from this earnings season.
Over the following analysis, we highlight consensus earnings expectations by sector.
Large commercial insurers’ consensus estimates are mostly down as we head into Q4 earnings. This is largely due to concerns surrounding the adequacy of casualty reserves as well as potential losses from Milton.
Many insurers tend to conduct deeper dive reserve studies in the latter-half of the year. During the year-end earnings season, we will be looking to see how these companies and others address the problematic recent accident years, as well as to what extent workers’ compensation and other lines soften the blow.
We also expect to receive an update on the California wildfires, which will impact Q1 earnings.
The table below shows a largely positive trend in consensus estimates for personal lines carriers. Industry observers continue to expect improved year-over-year performance following quarters of disciplined rate and underwriting action, with personal auto in particular remaining in focus. We will also get a first look at the impact from the California wildfires, which will have a material effect on this segment.
The table below shows how analysts have negatively revised their estimates for regional insurers over the past two weeks, most notably for Cincinnati Financial. Specifically, Cincinnati had a larger exposure to Milton versus the rest of the group, on which the hurricane had a minimal impact.
Specialty has been largely, though not entirely, revised negatively over the fourth quarter. Concerns have been raised about the segment’s continued reserving adequacy, but still not to an extent comparable to commercial lines carriers.
James River’s earnings per share declined more than any other companies’, reflecting the charge relating to its $75mn legacy deal with Enstar and the announcement that its strategic review was concluded without finding an acquirer. RLI’s downward trend is reflective of Milton losses and likely lower estimated reserve releases in Q4 2024.
Analysts have also negatively revised their estimates for reinsurers/hybrids across the board, reflective of Milton losses as well as reserve adjustments.
Everest has seen a particularly drastic change in EPS consensus since warning about the potential for a reserve adjustment in conjunction with its year-end earnings. See our note earlier this week for additional discussion on the leadership transition.
We also expect to hear about the impact of the California wildfires on reinsurers due to their substantial exposure.
Florida domestics are trending negatively due in part to the impact of Hurricane Milton on Q4 results. Despite robust reinsurance towers that absorbed much of the cat losses, all of the companies still had meaningful retentions which were announced in conjunction with their Q3 earnings.
Brokers are a mixed bag going into Q4. As we discussed in our 2025 outlook on the segment, there are a number of factors - namely a casualty pricing micro-cycle and the coming Trump administration - that create uncertainty around the extent to which growth pressures such as GDP and commercial lines pricing growth deceleration will actually impact the sector.
Therefore, we will monitor organic growth and margins at year-end. We will also be interested in updates from Aon, AJ Gallagher and Marsh McLennan on how they are executing on their NFP, AssuredPartners and McGriff acquisitions, respectively.