Where do insurers stand as they enter 2020?
Tuesday, February 11, 2020
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In the United States, the world’s biggest insurance market, the property and casualty (P&C) sector is building upon a strong 2018 in which the industry saw net income soar 66 percent to US$60 billion, thanks to a 10.8 percent boost in net premiums written and nearly breaking even on underwriting (after losing US$23.3 billion the year before).1 US insurer results deteriorated a bit but were still positive in the first half of 2019, with the industry posting an underwriting gain of US$5.4 billion (down from US$6.1 billion for the same period in 2018) and a profitable combined ratio of 97.3 (up from 96.2).2
Globally, Lloyd’s, the world’s biggest insurance market entity, reported a profit (US$2.8 billion) for the first half of 2019 after two full years of losses.3 While 2019 consolidated figures for the global industry are not yet available, nonlife premiums were up 3 percent in real terms last year, above the 10-year average of around 2 percent, with close to 3 percent growth expected again for full year 2019 and 2020.4 However, growth is expected to be more robust in some developing regions. Nonlife premiums in advanced markets are only expected to rise 1.8 percent through 2020, compared to 7 percent in emerging markets—slightly down from the 10-year average due to concerns about China’s slowing economy and trade disputes with the United States (figure 1).5
Some of the rise in US net written premiums can be attributed to changes in reinsurance purchasing strategy prompted by the Tax Cuts and Job Act of 2017.6 However, P&C insurers around the world are indeed growing premium volume simply by raising rates, in part to compensate for mounting liability and catastrophe losses as well as lower yields on fixed-income securities. Commercial policy pricing soared nearly 6 percent in the second quarter of 2019, according to Marsh’s Global Insurance Market Index—the seventh consecutive quarter of average price hikes, and the largest increase in any quarter since Marsh launched its survey in 2012.7
The hardening P&C market was a worldwide phenomenon, with increases in all major geographic regions for the third straight quarter, led by the Pacific region at 18 percent, versus 6 percent in the United Kingdom and 5percent in the United States, with continental Europe trailing at only 2 percent.8 Increases were most prominent in financial and professional liability (nearly 10 percent), driven in part by higher directors and officers losses due to escalating securities and derivatives suits. Property coverage (8 percent) also saw significant increases, given higher disaster losses over the last few years.9 Casualty rates overall were basically flat (1 percent).10
Looking ahead, S&P Global Market Intelligence is projecting “modest deterioration” in US P&C underwriting profitability over the next four years, as drivers of recent gains—including relatively strong private passenger auto liability results and favorable workers’ compensation loss trends—are expected to “abate over time.”11
The US industry’s top-line growth rates and profitability could also be undermined by a slowing economy, as Deloitte’s economic forecast team expects real GDP growth to fall to 1.6 percent in 2020, with the probability of a recession relatively high at 25 percent. Interest rates should remain at historically low levels, rising only to about 3.25 percent over the next five years.12
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