With the 2013 hurricane season, which spans form Jun 1 to Nov
30, about to end in three days' time, this particular season can
be safely tagged as one of the least intense since 1950.
As measured by Accumulated Cyclone Energy (ACE), the total
destructive power of a season's storms, 2013 ranks among the 10
weakest seasons since the dawn of the satellite era in the
As per the latest data available from the Insurance Information
Institute, insured losses due to natural disasters in the United
States during the first half of 2013 totaled $7.9 billion, far
below the 2000 to 2012 January to June average loss of $13.8
The absence of a major hurricane in the U.S. this season is a
huge relief for insurers who have been saved from settling huge
claims related to catastrophe losses.
Given the backdrop of an uncertain economic environment and
limited investment income opportunities, a benign hurricane
season has helped insurers to register better underwriting
results so far this year.
While an uneventful hurricane season directly lifts up the
bottom-line and strengthens balance sheets, looking at the other
end of the spectrum, it creates quite a few challenges for
insurers as well.
The insurance industry has been a soft market since 2006. In such
a scenario, there is abundant capacity, which leads to lower
premiums, easier underwriting criteria and intense
competition. Severe losses from natural catastrophes, on
the other hand, are a large component of the formula that
characterizes a hard market, marked by higher premiums, strict
underwriting and limited competition between carriers.
Currently, the insurance industry has abundant capital with
policyholders' surplus for the first half of 2013 increasing 4.6%
year over year to $614 billion as of Jun 30, 2013. As a result,
insurers are experiencing soft pricing in some business lines and
the downward pricing trend is likely to continue through the last
month of the year and into Jan, 2014 led by absence of
significant cat losses in 2013
Left with surplus capital, some insurers and reinsurers have
been returning capital to shareholders.
) with a Zacks Rank #1 (Strong Buy) returned approximately $700
million to shareholders through share buybacks in the first nine
months of 2013 in order to use its surplus capital.
Aspen Insurance Holdings Ltd.
), also carrying a Zacks Rank #1, increased its dividend by 5.9%
in Apr 2013 and has already purchased $296 million of shares
meeting its share repurchase goal for the year.
With markets not expected to harden fully in the near future,
players must seek other options for growth. Acquisitions provide
a significant opportunity to diversify and expand by location,
product or distribution source. Expanding internationally can
reduce domestic insurers' dependence on the U.S. economy.
Premium growth opportunities in the U.S. may also be derived
from extending coverage to new or emerging exposures in areas
such as cyber liability, nanotechnology and energy. Finally,
cross-selling products offer insurers the opportunity for both
increased profitability and persistency.
ASPEN INS HLDGS (AHL): Free Stock Analysis
CINCINNATI FINL (CINF): Free Stock Analysis
PARTNERRE LTD (PRE): Free Stock Analysis
ALLEGHANY CORP (Y): Free Stock Analysis
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Some of the stocks under our coverage which are uniquely poised
to gain from the recent trends in the industry are
Cincinnati Financial Corp.
) with Zacks Rank #1 (Strong Buy).