By David Bull

July 11 - (The Insurer) - While there continues to be plenty of discussion about macroeconomic forces and their potential impact on the P&C sector, the focus of investors as the Q2 earnings season gets underway next week is likely to rest on market conditions, especially the softening trajectory of property pricing and casualty loss costs.

The effect of the tariff war along with the interest rates outlook and GDP prospects will all be topics of discussion on earnings calls with management teams of U.S. publicly traded carriers and brokers.

But for insurers and reinsurers, sector-specific drivers of profitability will be the subject of great interest as investors seek to evaluate stocks that will better weather shifting market conditions.

In a preview note released Thursday, Citizens Bank analyst Matt Carletti said he expects second quarter results at carriers will include “lighter-than-typical” catastrophe losses and continued issues around casualty loss reserves.

“But we believe investors will be zeroed in on the pricing environment as weakness in property (and perceived improving conditions in other areas of the market ex-insurance) has spooked the sector more broadly,” he said.

Carletti pointed to 1 June Florida reinsurance renewals that were orderly with the view on rate movement coalescing around a high-single-digits decline, while property insurance rates more broadly have been under pressure as well.

With investors seemingly reacting negatively to the trajectory at a time where there appears to be an improved macroeconomic backdrop outside of insurance, there will be a greater focus than usual on the “state of the market”, the analyst suggested.

“While we understand the concerns surrounding property (though we note we think it is still priced for strong returns despite recent pricing weakness), we believe most casualty and many specialty lines of business continue to show improvements that have legs,” he said.

Meanwhile, analysts at TD Cowen led by Andrew Kligerman said that Q2 results should reflect some “incremental pressure” on top-line growth across much of the sector.

“In addition to more competition in property, pricing in professional lines remains down and price increases in casualty more generally may be decelerating. We are mostly modelling carrier underlying loss ratios to tick up modestly on pricing concerns,” he said.

He noted that the second quarter is a seasonally large renewal for large commercial property, particularly where the business is catastrophe-exposed, with much of it flowing through the E&S market.

SOLID E&S PREMIUM GROWTH

Kligerman also highlighted the latest stamping office data showing that E&S premiums rose 12% in the top three states of California, Florida and Texas in Q2 2025 – down from 24% in the first quarter and 15% in the second, third and fourth quarters last year.

“We consider E&S premium growth at 12% to be solid,” he said, noting that Ategrity and Skyward are expected to be among those specialty carriers that will benefit most from this “relatively strong” E&S data.

In his note, Citizens Bank's Carletti said investors should focus on “quality” companies with exposure to tailwinds in the sector against a backdrop of interest rate uncertainty, growing pricing pressure in some property markets, and persistent casualty loss cost inflation.

These would include those with strong balance sheets to offset potential concerns around casualty loss reserves, with earnings per share $(EPS)$ streams that are leveraged to both underwriting results – with less of a weighting to property in the near terms – as well as investment income, as those with longer duration portfolios will benefit longer from recent interest rate rises.

SEVERAL INNINGS REMAIN IN CASUALTY FIRMING

The analyst also commented in more depth on the U.S. casualty market as he noted that pricing continues to firm as prior-year losses persist, such that it “feels like several innings remain to us”.

“We have known for some time that reserves for the soft market years in casualty (originally thought to be 2015-2019) were questionable, at best, for many in the market.

“Pile on a few years of high inflation and the smoke has fully turned into fire, with only the strongest and most conservatively-stated balance sheets likely to avoid a reserve charge. Add to this a pandemic that delivered very mixed and unclear claims trend messages, and some companies are biting their nails over their 2020-2022 accident years as well,” said Carletti.

He said the environment remains “highly dynamic”, driven by social inflation as well as rising levels of litigation financing.

“We believe this is why prudent underwriters continue to keep loss picks elevated and report reduced levels of favorable reserve development (often stemming from recent property accident years.

“However, not all companies have taken this approach, with some adding to the 2015-2019 accident years, while simultaneously releasing from 2020-2022. While there can be exceptions to every rule, we generally believe such approaches lack conservatism,” Carletti continued.

He said casualty reserve additions are expected to continue to be a theme through 2025, noting that few (re)insurers are looking to markedly grow their casualty portfolios, with many holding flat or paring back their books.

The previews from TD Cowen and Citizens Bank analysts come after KBW’s Meyer Shields wrote earlier this week that the main areas of focus on earnings calls are likely to be pricing, loss trends, reserve development and capital deployment.

In his note, Shields said: “We expect 2Q25E P&C results to include: slowing, still-positive, commercial/specialty NWP growth; moderate catastrophe losses; company-specific commercial casualty reserve development; and solid core personal auto and homeowners’ core underwriting results with mostly-improving (policies-in-force) growth.”

AUTO COMPETITION

In his note, TD Cowen’s Kligerman also highlighted “clearly elevated” shopping activity in personal auto.

In a note earlier this week, Morgan Stanley analyst Bob Jian Huang downgraded Progressive’s stock to “Equal-weight” following its outperformance of the S&P 500 over the last 17 months.

He said: “We believe the drivers of our prior bullish call are dissipating. With increasing competition, the thesis should now shift to managing peak margin and growth.”