Insurance companies are expected to show underwriting discipline in the months ahead suggesting a strong pricing environment for 2021, which, coupled with rising exposures should bolster organic growth for brokers, according to analysis by S&P Global Ratings.
In 2020, market impact, which S&P says is best captured by insurance premium growth and includes both the insurance rate environment and insured exposures, was “a tale of two cities” for brokers.
For 9M 2020, U.S. statutory property / casualty direct written premium jumped 2.2% and while positive, represents a decline in growth from the 4.8% recorded in 9M 2019, as rate rises served to mitigate exposure declines.
“In 2021, in contrast, we believe brokers will on the whole be beneficiaries of both positive insurance rates and also rising exposures,” says S&P.
Throughout last year, insurance carriers pushed for higher rates across the marketplace in an effort to offset fading investment returns, loss inflationary pressures, higher weather-related losses, COVID-19 losses, and an expected rise in the cost of reinsurance amid market firming.
The reality is that while it remains to be seen just how costly weather-related events will be for insurers in 2021, many of the pressures that characterised 2020 remain. As a result, S&P expects continued price momentum in the months ahead but warns that this will be at a slowed place.
“Of course, rate trends vary materially by line of business, but even workers’ compensation, whose rates declined for years, has neared an inflection point,” says the ratings agency.
Rate momentum is also expected to be supported by continued underwriting discipline as insurers’ investment returns fade in a lower for longer interest rate environment.
The asset side of the balance sheet is increasingly under pressure for insurers and reinsurers of all shapes and sizes. But while the investment landscape has been challenging for carriers it has also driven a renewed focus on underwriting discipline; a trend S&P feels will drive a rating environment that will remain strong in 2021 despite high levels of capital.
“But pricing increases should slow this year as the compounding of rate actions already taken enable insurers to achieve adequate underlying profitability and returns on capital,” notes S&P.
Heading into 2021, S&P’s outlook on the global insurance services sector (insurance brokers, health servicers, and warranty and claims administrators) is stable, which reflects “improving global economy on top of resiliency demonstrated thus far throughout the pandemic.”
Insurers, reinsurers, and brokers have now started to report on their fourth-quarter and full-year 2020 results.
Earlier today, Marsh & McLennan Companies, Inc. reported full-year revenue growth of 3% over 2020, helped by revenue growth of 7% in its reinsurance broking arm, Guy Carpenter.
International insurance broker Howden also reported its results earlier this week; posting revenue of £777 million for the year, representing an increase of 7% compared with the previous year, or 6% on an organic growth basis.
