P&C (re)insurance carriers delivered healthy returns in the second quarter, with the majority posting results that beat Wall Street expectations, yet investors were quick to punish companies on the stock market as underlying performances weakened.
For example, XL Catlin's stock fell by 6.7 percent even though it delivered operating earnings of $0.96 per share - 9.1 percent above what the market predicted.
The drop was 80 basis points larger than the 5.9 percent stock depreciation at rival Bermudian Aspen, which missed consensus by more than half with operating earnings of $0.47 per share.
Following the negative market reaction at XL Catlin, Morgan Stanley analyst Kai Pan released a note saying that he had spoken "with XL management to address key investor concerns on core loss ratio improvement and growth", noting that there was still room for improvement.
Underlying erosions were also reflected in European market reactions. Hannover Re's stock was down 5.2 percent while shares in Swiss Re fell by 3.2 percent after their H1 earnings disclosures.
In his Q2 earnings review, UBS analyst Jonny Urwin noted that the two global reinsurers "bore the brunt of increasing market caution".
"The sector has limped through reporting season, with many beats translating to misses at underlying level.
"In P&C insurance, the level of underlying deterioration was striking amongst the reinsurers and Lloyd's names. This is the most comprehensive sign of soft market pressure so far, with share prices reacting accordingly," the analyst said.
Meanwhile, Kai Pan added in his Q2 review note that "reserve issues [have] become front and centre to P&C investors".
"Stocks' reaction to adverse reserve development can be quite harsh, and with a higher risk of reserve charges on the horizon, investors should be taking a deep dive into any company's reserve position," Pan commented.