Kroll Bond Rating Agency (KBRA) has assigned a stable outlook to the US property and casualty (P&C) insurance sector in 2020, based on the expectation that the industry’s strong capital, improved pricing, and disciplined underwriting will provide stability through the year.
These strengths will likely offset declining support to profit margins from decreasing favourable reserve development, increasing loss costs, social inflation, ongoing catastrophe losses, rising reinsurance costs and retentions, and low interest rates.
KBRA expects the industry to perform well into 2020 as insurers continue to actively manage these challenges, with the industry’s strong capital position set to buffer against severe market decline.
That said, shifts to more aggressive investment strategies could create challenges for some companies, while an extreme tail event or elevated losses could weigh negatively on the outlook.
Conversely, sustainable strengthening in profitability supported by a turnaround in negative loss trends, sufficient premium pricing, and growth of profitable business could provide momentum toward a positive outlook as the year progresses.
KBRA considers the industry to be benefiting from continued US economic expansion, but warned that this could be limited by political risks and trade wars.
Noteworthy challenges facing insurers in 2020 include pressure on earnings, declining reserve redundancy, low interest rates, climate change-related events, cyber risk, and the potential for reserve strengthening given emerging social inflation, and loss creep, as well as emerging exposures from opioid and child abuse reviver statute liabilities.
Although social inflation and loss cost increases are expected to pressure reserves and earnings, KBRA expects the industry’s strong capital, improved premium pricing, and tighter underwriting to provide stability through 2020.
