Managing Earnings Risk in Property and Casualty Insurance

This white paper addresses the challenges faced by the property and casualty (P&C) insurance industry regarding earnings risk management. It outlines how insurers have struggled with financial performance from 2017 to 2022, particularly in the wake of significant catastrophes. The document emphasizes the importance of understanding both large-scale and smaller, more frequent events that impact earnings. It presents a case study on European climate risk, detailing three key findings: the varying materiality of perils across countries, the overlooked impact of non-peak perils on earnings risk, and the potential underestimation of earnings risk due to improper loading. Additionally, the paper discusses the role of investors in earnings risk management, highlighting their expectations for transparency, risk management practices, and the implications of earnings risk on stock performance. The document concludes with a focus on the necessity of accurate catastrophe modeling to effectively manage earnings risk and support profitable growth.