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Tailwinds to further drive up earnings for P&C re/insurers: Morgan Stanley

9th March 2018 - Author: Staff Writer

P&C re/insurers are set for a profitability boost in 2018, driven by tailwinds of further rate improvements and M&A activity and deals that are spurred by the passage of the U.S. tax reform, according to Morgan Stanley.

profitable-growth-reinsuranceA net pricing increase of just 1-5% is expected to boost re/insurers earnings on average by 6-29%.

Analysts forecast mid-year renewals will again bring rate hikes for property catastrophe reinsurance following January renewals’ rate improvements of 5%.

These increased rates have rippled down the value chain to impact primary insurance and casualty lines.

Broad commercial lines indices showed pricing up 2% overall in 4Q17,versus 1% in 3Q17, with commercial auto still leading the pack at +5% and commercial property up +3%, noted Morgan Stanley.

Personal lines pricing also continued to improve, with overall pricing up about 3% in 4Q17,versus 2% in 3Q17 and personal auto remains robust with expected single digit increases.

In addition, the P&C industry will see an upswing from M&A tailwinds; “AIG’s $5.6 billion acquisition of VR and media reports on Allianz/XLand SoftBank/Swiss Re have rekindled industry M&A activities.

“We think the passage of U.S. tax reform gives certainty to deals. The somewhat ‘disappointing’ Jan 1 renewals could also push reinsurers to consider their longer term strategies. Heightened M&A should provide valuation support to the group, especially the reinsurers,” said Morgan Stanley.

Large domestic players (AIG, TRV), and Japanese and European international conglomerates were listed as potential buyers, while Bermudian reinsurers and regional small-mid cap insurers are likely candidates for consolidation, “especially those that have worked to become pure-play P&C, attractive to foreign companies seeking a foothold in the US),” explained Morgan Stanley.

Analysts added that they’ll be offering further updates on the P&C industry following the upcoming Florida property catastrophe renewals 2Q18 results.

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