According to analysts at JMP Securities, rates for primary insurance lines that are exposed to property are likely to re-accelerate in the upcoming months as the effects of higher reinsurance pricing spread.
According their analysis, in the first quarter of 2023, industry results will probably show a “complex picture,” as mark-to-market investment gains would boost many companies’ book values while having more severe weather than usual will hurt certain companies’ EPS.
Despite this, analysts anticipate that the market will continue to be driven forward by concerns about loss cost inflation, worries of a recession, the sustainability of primary pricing, and a rise in the cost of property reinsurance.
Winter storms and convective storms in the Southern US, together with flooding in California, and the 6.3-magnitude earthquake in Turkey, all contributed to a higher-than-average level of catastrophe activity in Q1.
Additionally, JMP adds that equities markets made a minor recovery during the quarter and interest rates declined, which could benefit book values in the mark-to-market process even though inflationary pressures have slightly subsided.
According to data, the prices for business lines increased by 5.0% in Q1 compared to the 5.1% increase seen in Q4 2022, with commercial property and commercial auto recording the biggest increases. Personal lines increased by 5.2% compared to the previous quarter’s 5.8%, with auto exhibiting a higher improvement than homeowners.
Although it agrees that the gap is closing and that H2 2022 may ultimately be considered as the turning point, JMP believes that ongoing rate increases will be necessary to fully keep up with loss cost trends.
Analysts note that the excess and surplus (E&S) lines have also had robust growth, which has been fueled by a combination of persistent increases in submissions, exposures, and pricing.
For the near future, they added, “We expect E&S markets to continue to exhibit some of the strongest growth and margin improvement trends within the commercial lines sector.”