Insurance Industry Outlook, Part 3: Property & Casualty

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The commercial, property and personal lines of P&C industry have been showing decent progress in recent quarters. Most importantly, ample underwriting capacity and heightened competition have helped P&C insurers to reach the market hardening phase, which is the key to improvement. After battling falling prices for years, the industry has been witnessing improving premium rates since 2013.

Though the low interest rate environment remains a drag on P&C insurers’ progress, a likely reversal of interest rates later this year should alleviate some pressure, particularly on their investment portfolios.

On the other hand, concerns related to weak capital levels are now things of the past, as the industry’s capital position has been building up on the back of better-than-before earnings and policyholders' surplus. High capital levels and lower-than-normal catastrophe losses are further reining in price hardening.

While a not-so-strong pricing power and continued pressure on investment income are concerns, capital strength and better preparation to withstand catastrophe-related losses should translate into better underwriting profits and lower combined ratio in the upcoming quarters.

Further, conservative investment strategies and capital restructuring efforts will continue to strengthen P&C insurers’ financial footing in the quarters ahead.

As property-casualty insurers hold about two-thirds of the invested assets in the form of bonds, their capacity is highly sensitive to changes in credit market conditions. With credit and equity markets showing improvement, insurers are likely to incur lesser realized and unrealized capital losses on their portfolios in the quarters ahead.   
Moreover, insurance volume is expected to expand going forward on speedier economic recovery. With improved employment in the private sector and recovery, though uneven, in the housing markets, a number of carriers have seen growth in insurance sales in the recent quarters.

Though competition is cropping up both within the primary lines of the P&C space and with reinsurers’ expansion, proactive transformational measures, including adoption of technology solutions, will give a competitive advantage.

Also, it appears that the pace of renewal rate growth is slowing as competition is heating up and is expected to remain flat in the upcoming quarters. In order to regain the renewal enthusiasm and meet evolving demands of policyholders, insurers are in the process of product reframing and innovation.

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