Commercial Lines, Reinsurance Should See Modestly Improved 2019 Pricing: KBW Prediction

Expect modestly improved reinsurance and commercial lines pricing in 2019, particularly in the specialty lines area, Keefe, Bruyette & Woods is predicting in a new report.

At the same time, the analyst firm said, more normal loss levels should pressure personal auto margins.

“Much-improved margins and the accompanying (and predictably widespread) desire for top-line growth should translate into steadily declining personal lines rate changes,” Keefe, Bruyette & Woods said. “We expect most commercial lines’ rates to rise in response to weak underwriting profits.”

One exception to the rising rate prediction: workers compensation. Keefe, Bruyette & Woods said that rates for this sector should keep falling but at a slower rate than in 2018.

In terms of reinsurance, significant catastrophe losses from 2017 and 2018 “and some ILS investor disappointment” should help boost reinsurance pricing,” the report asserts.

Some specific report highlights:

• Keefe, Bruyette & Woods predicts some expansion of personal auto margins in early 2019 but said they’ll compress later in the year as rate competition heats up due to insurers’ focus on top-line growth. Also adding to this trend: “likely fading benefits from 2018’s lower-than expected claim frequency.”
• “Sustained” commercial auto rate increases are expected to drive down loss ratios through 2019.
• Increased loss cost inflation, higher non-catastrophe losses, and the “inherent lag between written and earned premiums” are expected to pressure underwriting margins for homeowners insurance in 2019. This will happen even if rate hikes accelerate, the report predicts.

Keefe, Bruyette & Wood’s 2019 rate predictions follow a report from Willis Towers Watson in November that predicts 14 commercial insurance lines will face upward pricing pressure in 2019, with decreases in two: workers compensation and international casualty.

The full report is “2019 Outlook: Focus on Commercial Lines and Bermuda.”

Source: Keefe, Bruyette & Woods