U.S property and casualty (P&C) re/insurers are benefiting from a strong business environment with adequate capital reserves despite the elevated level of catastrophe losses in recent years, according to panellists at a recent S&P Global Ratings conference.
The executives generally agreed that the industry was currently enjoying strong fundamentals and capital levels, although there was potential for this to change in the future.
“We see a very strong business environment right now,” said Steve Johnson, President and CEO at Cincinnati Financial Corp., who pointed to steady U.S. economic growth and last year’s tax reform, which is expected to help level the playing field for American insurers to compete with overseas rivals.
“Property/casualty insurance is one of the few insurance or financial services industries not that reliant on where interest rates are going,” added Brian Meredith, Managing Director at UBS Group. “The outlook from a pricing perspective in commercial lines is pretty good right now.”
S&P Global Ratings has noted that pricing increases on personal lines of coverage are starting to accelerate after a slower 2018, although it expects personal auto to get more competitive.
Pricing increases in the excess and surplus market stand out after the withdrawal of capacity by larger underwriters, while increases are also evident in property and commercial auto,
Analysts believe this year could be an inflection point where pricing will likely outpace claims, although they noted that inflation has now been contained for a prolonged period.
“Inflation is either dead or in a coma,” Robert Hauff, Managing Director at Wells Fargo Securities, told attendees. “But I’m a mean-reversion guy, so I think that at some point–and I might be retired by then–inflation is going to come back.”
He added that insurers’ investment income had been a growing tailwind in the past couple of years, but that may soon become a headwind, although P/C portfolios tend to be more stable than in other sectors.
S&P Global Ratings credit analyst John Iten also noted that about 80% of outlooks on re/insurers in the U.S P&C sector are currently stable.
“The key factor for our outlooks and ratings is capital adequacy in the sector,” Iten said, adding that capital is at ‘AA’ levels whereas most operating company ratings are in the ‘A’ category.
More than three quarters of people in attendance at the S&P conference said that they believed the industry’s reserves were ‘good for now,’ but were worried about the future.
