S&P Global Ratings has underlined the stability and financial strength of U.S insurers for 2019 in an overview of its North American insurance outlook.
“Entering 2019, North American insurers’ financial strength remains strong with broadly stable rating outlooks that reflect our expectation for limited rating change over the next 12 months,” explains S&P Global Ratings credit analyst Joseph Marinucci.
Overall, S&P says the average financial strength rating for the insurance portfolio continues to reside in the upper half of the strong/A category.
This robust balance sheet remains a pillar of credit-quality support for the portfolio, providing a measure of protection from risks related to negative economic developments in a broad sense, and the expansion or increase in the magnitude of specific current and emerging sub-sector challenges more specifically.
However, looking beyond 2019, S&P anticipates major regulatory and accounting changes to affect life insurers.
There are longer-term issues such as genomics and genetic testing, as well as changes in U.S longevity trends, that S&P says could affect the industry long-term.
Subsequently, S&P considers 2019 a pivotal year to prepare for specific challenges that could be transformational for the industry over the medium to long term.
The U.S property/casualty insurance industry has enjoyed a good build-up of excess capital, mostly attributable to good earnings, dwindling share buy-back activities, and until recently, asset appreciation.
S&P says the sector’s capital redundancy helps to buffer adversity, including elevated cat activity over the past two years and higher attritional losses.
Although ample capitalisation exists, (P/C) insurers are still demonstrating restraint through underwriting discipline, effective enterprise risk management programs, and conservative investment strategies, which collectively support S&P’s stable outlook on the U.S (P/C) insurance sector.
After a prolonged period of pricing complacency led to rate inadequacy in many product lines, S&P states that something had to give in 2018.
Regardless, on a risk-adjusted basis, S&P believes the sector can do better than the low single-digit pricing increases taken last year.
As long as price firming continues, the sector may reach rate adequacy, but it may take a few more years to do so. In the meantime, S&P are projecting that the industry will report a 98% combined ratio in 2019, which is as good as it gets.
