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Interest rates may have been cut in the US but it’s likely the effects will be seen until later in the year if the healthy returns by several mid-sized and larger players in the market are the example in the latest round of Q3 investment results to be revealed.
Industry majors such as CNA and W.R. Berkley were among the names to announce Q3 returns.
Already, Travelers, the usual first announcer of the US majors, has said it saw a higher net investment income, which was partially offset by higher catastrophe losses. The higher cat losses were a theme, as usual in Q3, due to the Atlantic Hurricane season, which has been particularly active this year.
“Net realised investment gains in the [Q3] were $55 million pre-tax ($42 million after-tax), compared to net realised investment losses of $65 million pre-tax ($50 million after-tax) in the prior year quarter,” it said in its press release last week.
According to Moody's RMS Event Response, the total combined private market insured losses estimates from Helene and Milton alone are between $30 billion and $50 billion.
These results will largely be shown in Q4 results.
Several other majors have released their results in the past week. Connecticut-based W.R. Berkley said its net investment income grew 19.5% to $323.8 million compared to the prior year.
“Net investment income increased 19.5% over the prior year Q3 driven by an increase in fixed-maturity income,” said the release. “We anticipate that the Company’s new money rate will remain above the current yield of our US fixed-maturity securities, notwithstanding the recent and expected decreases in short-term rates. Coupled with increases in invested assets from continuing record cash flow, we remain well-positioned for further investment income growth.”
For the first nine months of 2024, its investment income was $1.015 billion compared with $739 million for the same period in 2023. A breakdown of the portfolio allocations showed over 76% was in fixed maturity securities. The rest was in equities.
New Jersey-based Selective Insurance said its earned net investment income was $117.8 million for Q3 compared to $100.9 million for 2023. After-tax net investment income was $93 million, which was up 16% from 2023. The after-tax income yield averaged 4.0% for the overall and fixed income securities portfolios.
Net premium written increased 9% from a year ago driven by an “accelerating renewal pure price increases and stable Standard Commercial Lines retention”. The investments segment generated 13.1 points of annualised return on equity in the quarter.
Chicago-based Old Republic said its net investment income increased 17.3%, driven by higher investment yields. Its reported pre-tax income, excluding investment gains (losses) (pre-tax operating income), is $229.2 for the quarter and $714.7 for the first nine months. General Insurance pre-tax operating income declined 8.5% for the quarter and increased 4.6% for the first nine months.
Pre-tax investment gains were $197.7 million for Q3. For the nine months to September 30, investment gains were $224.3 million.
As mentioned above, more exposed companies said they expected big losses from the very active Atlantic Hurricane Season that caused huge amounts of damage across the southeast US over the past few months with several record-breaking storms.
Florida-based Heritage Insurance said it expected to incur approximately $48 million of net current accident quarter catastrophe losses stemming from Hurricanes Debbie and Helene in the third quarter [of] 2024.” Despite the impact of the hurricanes, the Company expects to deliver positive net income for the [Q3],” said its press release.
Major CNA said it expected to report pre-tax net catastrophe losses in Q3 of $143 million.
“Approximately 75% of the catastrophe losses are associated with four larger events, including $55 million from Hurricane Helene,” said its press release. “The remaining approximately $35 million of losses is spread across a number of additional events occurring during the quarter.”
Catastrophe losses are comprised of $127 million in the commercial segment and $16 million in the International segment. The combined ratio impact of this Q3 catastrophe result is in line with CNA's Q3 average over the last five years.
Additionally, pre-tax net catastrophe losses related to Hurricane Milton, currently estimated between approximately $25 million to $55 million for the company, are anticipated to be reflected in the Q4 2024 results.
Away from the catastrophe losses, many more industry figures suggest that there could be further changes heading into Q4. “J.P. Morgan Research expects the Fed to cut rates by another 50 basis points at its next meeting in early November,” said the institution’s response to the last rate cut. “This diverges from the Fed’s “dot plot” — a chart that records each Fed official’s projection for short-term interest rates — which points to two additional 25 basis point cuts this year.”
The company said the cuts would largely come down to US job data. “More benign labour data would, instead, seal the case for the Federal Open Market Committee's (FOMC)’s Goldilocks scenario of 25 basis point eases per meeting over the remainder of the year.”
This week the US Department of Labor said that in September unemployment rates were higher in five states, lower in one state, and stable in 44 states and the District of Columbia. “Nonfarm payroll employment increased in five states and the District and was essentially unchanged in 45 states,” it said.
Overall, employers in the US added 254,000 jobs in September, which was “much more than expected”, while the jobless rate dipped from 4.2% in September to 4.1%, the Labor Department said.
These employment could be the numbers the FOMC is looking for to further lower rates, which could lead to more changes in investment
