Analysts at S&P Global Ratings have suggested that insurance brokers & service providers have started 2023 on sound footing despite the looming recession and tightening financial conditions.
The rating agency’s sector view for global insurance services is largely stable, reflecting resilient industry fundamentals for most subsectors. S&P expects limited rating changes over the next 12 months.
The analysts anticipate insurance brokers will show continued favourable performance in 2023, though it will be down slightly compared with the highs of 2022.
They note that organic growth will generally be in the mid-single digits or better, with steady to modestly improving margins.
S&P writes, “Excluding the cost of capital, external conditions should remain an overall net tailwind despite the weakening economic backdrop since brokers are net beneficiaries from continued elevated, albeit moderating, inflation and insurance pricing.
“In our view, the market impact for brokers is best captured by insurance premium growth (the base from which broker commissions and fees are largely derived), which encompasses both insurance rates and insured exposure.
“For the first nine months of 2022, U.S. statutory P/C direct premiums written rose 8.1%, fuelled both by increasing insurance pricing and rising exposure unit growth.”
The analysts suggest that the positive market impact from premium growth combined with solid new business and retention trends enabled most brokers to post very favourable organic growth trends over the last few years.
The median organic growth sat at 9% across the companies that S&P rate for the first nine months of 2022, far exceeding pre-COVID-19 run-rate levels in the low to mid-single digits.
According to the analysts, brokers with material wholesale, managing general agent, or other specialty operations displayed the greatest outperformance.
This was due to premium growth in the excess and surplus markets far exceeding standard lines. S&P cites Wholesalers AmWINS and Ryan Specialty as examples, both of which posted organic growth in the mid to high teens for the year.
S&P’s analysts add, “On the rate side of the premium equation, P/C premium price increases, which have been rising steeply for the last several years, started to show signs of moderation in 2022 but remained robust in the high single digits, on average, throughout the year.
“Carriers continued to push for rate in response to rising loss costs on account of social and economic inflation, and more severe and frequent weather trends, among other factors.”
They conclude, “Commercial insurers often priced in excess of the trend to achieve target profitability. With commercial lines writers improving performance largely through year-over-year rate increases, we expect commercial lines rate increases in aggregate will likely continue to decelerate into 2023.
“Nevertheless, inflationary pressure on loss costs, rising reinsurance pricing and shrinking capacity following Hurricane Ian, and continued underwriting discipline by management teams more focused on margin protection should keep the overall market firm.”
