Markets in Focus
Insurance Pricing & Market Update
As the insurance industry looks to move forward from a tumultuous 2020, many of the market factors that impacted P&C insurer’s financial performance in 2020 continue into 2021, albeit to an anticipated lesser degree.
Overall, the pre-pandemic trends of social inflation, increased frequency of catastrophic events, and low investment yields driven by historically low interest rates are still issues carriers are having to work through in 2021.
Regarding catastrophes, in the first quarter of 2021 the insurance industry has already witnessed a record-breaking winter storm. Winter Storm Uri is estimated to have caused $18B1 in insured losses across the country with the majority of claims occurring in Texas. Though most of these losses were concentrated in one state, the impact is expected to ripple throughout the entire property market.
As for investment income, insurance carriers are struggling to find yield. Though the S&P 500 and other major indices continue to climb, insurance companies’ investment choices are highly regulated and generally limited to very safe low-yield derivatives. As such, carriers are seeing weak yields as credit spreads tighten further for lower risk investments and new treasury bills purchased at lower rates are offsetting gains from previously purchased higher rate treasury bills. This environment will result in carriers needing to focus on technical underwriting income and combined ratios in order to be profitable, thereby contributing to a continued hardened commercial insurance market. However, the outlook is fortunately not entirely doom and gloom for insurance purchasers.
1 Estimate from Karen Clark & Co. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/losses-fromwinter-storm-in-southern-us-expected-to-reach-historic-levels-62766641