Thursday, 19 January 2012
US insurance leaders believe recovery underway, Deloitte not so sure
US insurance company leaders believe the worst of the financial crisis is over and that the industry is now in the early stages of a hard market, according to a survey conducted by the Insurance Information Institute (III).
Insurance Information Institute
The survey found that 75% of executives in the property/casualty industry expect an improvement in profitability in 2012, and 72% believe the industry is on the road to recovery. It also found that 72% of respondents expect an improvement in commercial lines in the US.
"The consensus among forecasters is for growth of the US economy in 2012 at a little over a 2% annual rate, net of inflation," said Dr Steven Weisbart, Senior Vice President and Economist with the III. "In that scenario, the demand for property/casualty insurance will increase modestly, both in terms of personal and commercial coverages," he said.
"The industry is well capitalised to provide this additional coverage and to pay claims under it without difficulty. Rates will be determined, as they should be, by state- and local-level market conditions, recognising the impact of inflation on claims and the effect of lower investment income than the industry has earned in prior years," continued Dr Weisbart.
According to the Institute, 67% of respondents believe that premium growth in the US will be higher, 31% believe it will remain flat, and only 2% believe it will be negative. In terms of capacity, as measured by policyholders’ surplus, 56% of respondents expect it to increase, 35% believe it will remain flat, and 9% believe it will decrease.
Accounting firm Deloitte, however, is not so optimistic.
It stated that ongoing global economic challenges will make it difficult for insurers to generate growth and profits over the short- and long-term, in a new report.
The firm said, however, that by focusing on strategic growth opportunities, operational excellence and innovation, insurers may still achieve their goals.
Property and casualty insurer top lines will benefit from rising prices prompted in part by high 2011 catastrophe losses and subsequent hikes in reinsurance premiums. The soft market in commercial lines appears to have bottomed out with carriers and brokers reporting significant premium increases on renewals, said Deloitte.
With developed economies failing to deliver consistent, large-scale growth, insurers may consider entering emerging markets including China, India and Brazil, where the financial security demands of an expanding middle class could provide significant growth opportunities, the report said.
It added that mergers and acquisitions volume increased in 2011, although deals tended to be strategic, niche acquisitions with buyers adding new product lines and distribution channels, and expanding geographic reach into emerging markets.
With more carriers undergoing strategic reviews for potential mergers and acquisitions, there is potential for an uptick in bigger deals in 2012, particularly if organic growth remains challenging over the short- to medium-term, said Deloitte.
It also pointed to emerging risks: “Emerging property and casualty exposures are prompting coverage for cyber-liability, green construction, nanotechnology, global political risk, and professional liability associated with new regulations.”
Brokers, analysts and the insurers and reinsurers themselves keep telling everyone that will listen that the international insurance and reinsurance industry is currently over-capitalised. But at the same time corporate risk and insurance managers complain that the industry is barely scratching the surface of its risk transfer needs and that its cost-laden, traditional line of business approach prevents it from meeting their real demands. John Charman, Chairman and CEO of Bermuda-based Endurance Specialty, believes that consolidation is the answer. He is literally prepared to put his money where his mouth is and bought a $30m stake in Endurance when he took the helm last May. He has reorganised and refocused Endurance for further growth and has now made an audacious and contested bid for rival Bermuda insurer Aspen to fast track the process. Commercial Risk Europe Editor Adrian Ladbury investigates what lies behind the proposed deal and what potential implications it has for the wider market.