Outlook mixed for insurer profits: Analysis

Profits for commercial insurers and reinsurers may come under pressure in 2020, despite rate hikes in several lines of business, as liability loss trends worsen, according to a report by New York-based investment bank Keefe Bruyette & Woods Inc. issued on Monday.

General liability rates, commercial auto liability and reinsurance rates will likely continue to rise next year, but workers compensation rates could see more decreases, the report said.

Most insurers have recently reported high single-digit and some double-digit rate hikes for general liability, “which we expect to persist in 2020,” the report said.

Next year should also see single-digit increases for commercial auto insurance, despite several years of previous increases, the report said.

Underlying causes include loss trends worsening as claim severity increases – driven by more expensive automobile parts – and rising medical care inflation, the report said.

Social inflation is also causing headwinds for general liability insurers, pressuring both current and prior-year results, the report said.

Workers comp insurers will also likely see headwinds in 2020, the report said.

“We expect workers compensation margins to start deteriorating in 2020 driven by rate decreases and fading reserve releases,” the report said.

Reinsurance buyers will see “significant rate increases” for excess property and casualty lines, but property catastrophe rate changes will likely vary by region, “reflecting recent years’ enormous U.S. hurricane and wildfire losses and recurring double-digit billion dollar Japanese typhoon losses,” according to the report.

Jan. 1, 2020, renewals should include “significant” increases for retrocessional reinsurance, but “moderate” increases on U.S. risks, the report said, noting that January 2019 (right year?) renewal quotes largely did not fully reflect December 2018 wildfire losses in California.

European reinsurance risks should see “very modest increases” due to the absence of major losses, but rate increases should accelerate during the Asia-focused April 2020 reinsurance renewals as reinsurers factor in both Typhoon Jebi’s significant loss “creep”, much of which came after April 2018 renewals, and Typhoons Faxai and Hagibis, “which likely drove at least $20 billion of insured losses.”