Analysts at JMP Securities report that property-exposed primary insurance lines are likely to see rates re-accelerate over the coming months as the impact of higher reinsurance pricing trickles down.
Reflecting on the first quarter of 2023, JMP noted that industry results will likely present a “complex picture”as mark-to-market investment gains will positively impact book value for many, while above-average levels of severe weather may negatively impact EPS for some.
That said, analysts expect the market’s focus to remain forward-looking, centered around loss cost inflation pressures, recession fears, the sustainability of primary pricing, and a resurgence in property reinsurance pricing.
Catastrophe activity was above average in Q1 with winter storms and convective storms throughout the Southern US, coupled with flooding in California, and the 6.3 magnitude earthquake in Turkey.
And while inflationary pressures have eased a bit, JMP notes that interest rates contracted during the quarter and equity markets rebounded modestly, which should drive mark-to-market tailwinds on book values.
Data shows that commercial lines pricing was up 5.0% in Q1, broadly in line with the 5.1% increase observed in Q4 2022, with Commercial Property and Commercial Auto seeing the largest gains.
Personal lines were up 5.2% versus 5.8% last quarter, with auto showing stronger improvement than Homeowners.
Here, JMP believes that sustained rate increases will be needed to fully get ahead of loss cost trends, although it acknowledges that the gap is narrowing and H2 2022 could be seen as the inflection point in hindsight.
In excess and surplus (E&S) lines, analysts also point to strong growth, driven by a combination of sustained increases in submissions, exposures, and pricing.
“We expect E&S markets will continue to exhibit some of the strongest growth and margin improvement trends within the commercial lines sector for the foreseeable future,” they concluded.