P&C execs optimistic about earnings outlook: KBW

In Keefe, Bruyette & Woods, Inc, (KBW) recent analysis of the 2024 Association of Insurance and Financial Analysts (AIFA) conference, they found that management teams across virtually all Property & Casualty (P&C) sub-sectors are appropriately optimistic about their earnings outlook.

KBW highlights that brokers are optimistic about their growth prospects, stating, “We think the brokers broadly anticipate positive-but-decelerating organic revenue growth into 2025.”

This optimism is driven by ongoing risks such as geopolitical conflicts, economic uncertainty, extreme weather events, and cyber threats. Moreover, KBW believes wholesale brokerages are poised for strong growth as elevated submission flows persist.

They note that brokers also anticipate expanding profit margins through cost efficiency and analytical tools for better marketing and distribution. With increasing interest from private equity firms and anticipated divestments by banks and insurers, the brokerage market may see more acquisitions in the future.

KBW comments that overall, personal auto insurers expect profits to improve in 2024, driven by “accumulating rate increases and recently moderating loss severity trends that remain above pre-COVID levels.” Despite challenges such as shifts in commuting patterns and distractions from devices, insurers maintain cautious optimism.

Similarly, homeowners insurers expect improved returns due to rate increases and stable reinsurance prices, although homeowners’ policy renewals take longer than auto policies.

KBW reports that standard commercial insurers anticipate stable margins despite varied rate increases and decreases in workers’ compensation in 2024. Challenges include rising lawsuit costs and uncertain court-ordered payments.

However, they remain optimistic about profit improvements in personal lines and excess and surplus segments, driven by higher prices and reduced competition.

Within the specialty commercial lines, KBW analysts state that they are optimistic about the E&S market environment, noting strong submission flows. Property business isn’t returning to the admitted market due to climate change concerns. Submission flows now include more casualty business, indicating inadequate rates based on past loss estimates. Prices for E&S property, general liability, and umbrella coverage remain positive, with transportation-related risks shifting to specialty markets.

However, public company D&O and cyber coverage are exceptions, with many considering current public D&O pricing inadequate.

Analysts at KBW also note that reinsurance executives are optimistic about property catastrophe conditions, expecting continued demand for capital deployment.

Executives cautiously welcome Florida reforms but remain hesitant to adjust pricing assumptions. In the broader picture, stable mid-year property reinsurance pricing is expected, with modest optimism in casualty reinsurance trends.

Overall, KBW’s analysis indicates widespread optimism among management teams across the P&C sub-sectors, driven by factors such as organic revenue growth, cost efficiency, and favourable market conditions. Despite challenges, insurers maintain cautious optimism, with expectations for improved profitability in various segments.

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