Sagging investment performance for property-casualty insurers has put the screws to other carrier operating segments to take up the slack. Underwriting and premium growth are natural go-to operations, but can they make up for what could be continuing anemia in the capital markets?
A panel of experts at the January 2015 Property/Casualty Insurance Joint Industry Forum took a look at the issue and identified several challenges for the year ahead.
The first is what is predicted to be a persistent low-income environment for investments. For example, though last year’s investment returns look fairly solid at about 8%, the same cannot be said for the future. As bonds hit maturity, that money has to be reinvested, but the fixed-income opportunities that are out there are not going to produce those decent gains. Rates are low and don’t show any sign of rising any time soon, and equities markets are volatile. Projected capital investment returns are not commensurate with the risk that’s being taken, V. J. Dowling of Dowling & Partners said on the forum panel.
If premiums fall along with that reduction in investment income, insurers will start feeling the pressure on their reserve status. Matthew Moser from A. M. Best identified the squeeze on reserves as a prime reason for the company’s negative outlook for commercial lines carriers. Personal lines, he said, are not experiencing quite the same downward pressure, though large personal lines insurers are experiencing their own challenges, according to another speaker, Brian Sullivan of the Auto Insurance Report and Property Insurance Report.
Midsize insurers that have figured out how to weave in third-party systems to increase their through-processing agility and boost their access to and application of big data are gaining on the industry behemoths, he says. Smart technology investments that focus on claims and policy management system upgrades, potentially through cloud technology rather than in-house infrastructure, could level the playing field a bit.
Industry disruptors are emerging, the panel agreed. That includes new sources of reinsurance financing and new carrier infrastructure models. Moreover, the lack of catastrophes over the past decade can’t be counted on, panel members said. The period of minimal catastrophe losses won’t last forever, Robert Hartwig, president of the Insurance Information Institute, reminded participants.