Goldman Sachs’ latest report highlights a positive outlook for insurance brokers in the Americas as they head into the third quarter of 2023.
Despite expectations of some deceleration in growth, brokers are set to enjoy above-average organic growth, thanks to a favourable broking environment.
The report suggests that several factors are contributing to the ongoing success of insurance brokers in the region.
A firm property and casualty (P&C) pricing cycle, a unique inflationary environment, and a tight labor market are all playing a role in driving growth.
However, a key shift in the business mix towards lower property premiums is expected to result in sequential growth deceleration.
One of the central factors influencing the anticipated deceleration in growth is a decrease in property premiums, particularly Property Catastrophe (CAT) business in the third quarter.
The extent of this deceleration varies due to differences in business mix, economic headwinds, and exposure to transactional business outside of rate per click (RPC).
Retail P&C globally is still expected to deliver strong results, with Reinsurance brokerage projected to see high-single-digit to low-double-digit premium growth, although this represents a decrease from the first half of the year.
Employee benefits are expected to contribute to overall organic growth, offsetting some wage increase and employment growth challenges. Meanwhile, the excess and surplus (E&S) markets are likely to experience modestly decelerating organic growth, despite resilient submission flow.
The report anticipates relatively steady commercial pricing increases, although some pressure on company-reported pricing indices is expected due to the reduced weighting of Property business.
Property pricing, in particular, is witnessing robust increases, driven by more frequent and severe weather events and higher Property-CAT reinsurance pricing.
However, not all segments are experiencing such positive pricing trends. Workers’ compensation and public Directors & Officers (D&O) pricing are facing headwinds, with an uptick in D&O business in the second half of the year. Cyber pricing, while still positive, has seen a slight deceleration.
The report acknowledges some divergence in pricing data, with various indices providing different views on pricing trends.
Overall, the expectation is for modest pricing deceleration, driven by factors such as inflation and its longer-term impact on reserves. Insurers are likely to continue seeking price increases at relatively similar levels in light of the uncertainty surrounding inflation trajectories.
