Equity analysts at Morgan Stanley have released a report which shows a number of predictions for 2021, anticipating that favourable pricing trends are likely to continue driving robust premium growth during 2021.
Many factors have driven recent hardening such as broad industry repricing throughout various lines that have still yet to achieve rate adequacy, moderating industry reserves, capital conservatism in light of COVID-19-related claims uncertainty, sustained low interest rates and a challenging tort environment are expected to persist throughout 2021.
This favourable pricing environment is predicted to be sustainable for at least the next 12 to 18 months. Management teams are expected to express this optimism during Q4 2020 earnings conference calls that are expected to take place in January and February.
Morgan Stanley also looked into the E&S Market, which continues to present robust growth opportunities as global commercial underwriters with significant market shares are increasingly tightening their policy wording and rejecting brokers’ generic policy manuscripts.
In addition, global carriers are also directing their underwriters to move policies from the admitted market to the E&S market against the backdrop of shrinking E&S capacity.
These factors are expected to drive sustained price hardening in the E&S market while also presenting attractive growth opportunities for carriers with an E&S focus such as KNSL and PLMR.
Both E&S casualty and property lines continue to demonstrate strong pricing improvements as market sources and management teams have estimated that pricing could continue to accelerate from 3Q levels that were in the mid-teens.
While some have speculated that the current COVID-19 crisis could spark more competitive industry pricing dynamics among underwriters in an attempt to support retention and sustain market share leadership, Morgan Stanley believes that COVID-19 claims uncertainty and recent concerns about pricing pandemic risk will only serve to reaffirm management teams’ discipline and commitment to offering adequately priced risk products.
Furthermore, the prolonged low interest rate environment will also serve to sustain carriers’ commitment to disciplined pricing for the foreseeable future.
Morgan Stanley further noted that price hardening accelerated in 2020 due to carriers being in capital preservation mode due to the uncertainty that surrounds COVID-related claims and the ensuing weaker economy. The decline in interest rates is contributing to higher prices as well, although less so than the other factors.
It is also predicted that property cat prices will continue to harden over the next year as re/insurers attempt to bolster returns following record losses. These predictions are both from weather-related events as well as from the COVID-19 pandemic.
