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 disaster. Liability coverages are also part of this industry.
Insurance coverages provided by the companies include commercial and personal properties, automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, professional indemnity and 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 industry’s three major themes:
- The industry is witnessing an increase in premium pricing after suffering from low prices for several years. In the first quarter of 2019, in personal lines insurance homeowners, automobile and personal articles saw rate increase of 2%, 2.5% and 1%, respectively. In Commercial lines, most of the lines saw premium rate increase of 2%, while Commercial Auto saw a 7% rate increase. A rise in premium rates should lead to top-line growth. However, still-low interest rates (which might not see any increase in 2019, due to Fed’s dovish monetary policy) might put pressure on insurers’ net investment income, another important component of total revenues.
- The property and casualty industry boasts good policyholders’ surplus, which is insurers’ excess of assets over liabilities. At year-end 2018, the ratio of new premiums written to surplus was 0.83 to 1.0 (lower numbers are stronger). In the first quarter of 2019, policyholders’ surplus remained strong with the stock market’s robust performance. This indicates that the industry remains well capitalized and financially prepared to pay for large-scale losses in 2019 and beyond. This surplus capital should also fuel increased consolidation in the industry as players seek to increase market share, achieve geographical diversification, change product mix and growth in niche areas.
- The industry is witnessing increased use of technology, like blockchain, AI, advanced analytics, telematics, cloud-computing and robotic process automation to expedite business operations and save unnecessary delay and cost. The industry is also experiencing the emergence of Insurtech — technology-led insurers — creating competition for the incumbent players. It is to be noted that the focus for insurtech is mainly on the property and casualty insurance industry. Given that these insurtechs are already widely using the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains huge market risk.