Near-Term Outlook For P&C Insurance Industry Appears Gloomy

The Zacks Property and Casualty Insurance (P&C) industry comprises companies that provide commercial and personal property and casualty insurance products and services. Such insurance coverage helps to safeguard property in case of any natural or man-made disasters. Liability coverage is also part of this industry.

Insurance coverage provided by the companies include commercial and personal properties, automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, professional indemnity, surety, among others.

Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums collected to meet their commitments to policyholders. Thus, a rising rate environment is a boon for P&C insurers.

Here are the three major themes in the industry:

  • The P&C insurance industry is affected by natural catastrophes or man-made disasters. The industry enjoyed a benign catastrophe environment for a few years following 2011, which helped it build reserve. Nonetheless, 2017 turned out to be the costliest in terms of catastrophe loss while the second half of 2018 was marked by frequent natural disasters of significant magnitude. Though capital reserve kept these insurers afloat, underwriting profitability suffered and combined ratio deteriorated.
  • Following the 2017 catastrophe loss, insurers started hiking price that had been soft for long. While insurers managed to raise prices for most lines of business, workers compensation and international liability pricing continue to remain soft. Also, surplus capital level has been putting pressure on desired price hikes. Prudent pricing helps safeguard profitability of insurers and maintain competitive edge. Also, with economic growth and a strong labor market, insured exposure should increase, given the frequency and magnitude of catastrophic events.
  • Given a not-so-active catastrophe environment post 2011 through 2016, insurers were able to build a sturdy capital level, which is helping them pursue mergers and acquisitions aggressively. Moreover, increasing adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence or blockchain should help insurers curb operational costs.
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