January 2025
Insurance Insight | Insurance Industry News: Homeowners Insurance Profitability Gap
Aon released a new report on the profitability of homeowners insurance that calls into question whether the current structures can result in underwriting profit. 200 of 300 insurance groups studied over the last decade failed to earn an underwriting profit, and 50 of the 100 profitable firms had ROE lower than 10%.
October 2024
Insurance Insight | Insurance Industry News: Global Reinsurers ROE at 22% in 2023
In a new Special Report, AM Best has identified that the return on equity (ROE) for reinsurance companies was 22% in 2023, a five-year high. The positive ROE was driven by both underwriting and investment performance. Reserve leverage decreased, operating margins increased, and investment returns were supportive.
September 2024
Insurance Insight | Insurance Industry News: Net Investment Income in Focus
In 2023, the US insurance industry began to see benefit from the Federal Reserve’s rate increases, with Net Investment Income (NII) increasing by 9.6% for life insurers and 27.7% for P&C insurers. Although the results varied widely, with some insurers choosing to extend duration along the curve and others boosting cash positions given short-term rates.
August 2024
Insurance Insight | Insurance Industry News: Status Quo a ‘Recipe for Failure’?
Mutual property & casualty insurers have experienced a number of tough years recently, in large part due to the significant numbers of convective storms and increases in repair and replacement costs. S&P Global Intelligence recently reported that the cumulative combined ratios for mutuals in 2022 and 2023 was 109.2%, which exceeded the combined result for all other P&C companies by 12.6%.
June 2024
Insurance Insight | Insurance Industry News: NAIC Principles-Based Bond Definition
“The implementation of the NAIC Principles-Based Bond Definition is January 1, 2025, and we recommend all insurers be working with their accounting and asset management firms to verify they are ready. Every investment page of the quarterly and annual statements will change as Investment Schedule D Part 1 will now be split into two sections along with new lines/categories/additional columns/etc. Within the new Schedule D1: a. D1.1 for Issuer Credit Obligations (ICO’s) – e.g. government, muni, corporate bonds, etc.; and b. D1.2 for ABS/MBS (NAIC 43R securities). ABS/MBS securities will need to be evaluated to see whether they meet the definition of Asset Backed Securities.
April 2024
Insurance Insight | Insurance Industry News: Home Insurance Premiums May Hit Record
A new analysis by Insurify suggests that U.S. home insurance rates are expected to reach a record high this year. Average premium increases may be $2,522 by the end of the year, which follows on to an approximate 20% increase already in the past two years. The key drivers of the increase are increasing natural disasters, and rising home repairand reinsurance costs, along with outsized costs of insurance fraud and legal disputes in some states. Only one state, South Dakota, is expected to see lower insurance costs, and six states are expected to remain flat. The remaining 43 states will likely see significant increases.
March 2024
Insurance Insight | Insurance Industry News: More Insurers Outsourcing Investments
According to new AM Best Special Reports, more insurers are relying on outside asset managers to manage at least a portion of their investment portfolios. While this trend has been on an upswing for over a decade, it has accelerated in the last few years. AM Best believes there are several factors contributing to this trend, including an increase in cash available for many life and annuity companies, the need for specialty assets across all types of insurers, and the desire to focus on core businesses rather than add market and investment research capabilities in-house.
December 2023
Insurance Insight | Insurance Industry News: New Focus for the FHLB
In November, the FHFA published updated rules for the FHLB system, bringing the organization’s focus back to two primary objectives: 1) providing stable and reliable liquidity to their members and 2) supporting housing and community development. In the wake of the March bank failures, the FHFA had become concerned with the use of FHLB funding as a source of emergency or “last resort” funding by member banks, rather than as long-term advances or supportive of affordable housing.
November 2023
Insurance Insight | Insurance Industry News: Largest Ever Decline in Agency M&A
According to OPTIS Partners, the number of agency M&A transactions through September 30th has decreased 27% from 2022. OPTIS states this is the largest decline ever recorded. The third quarter alone was down 34% from the same period in 2022. Rising interest rates, economic uncertainty, the regulatory environment, a decrease in the number of prepared sellers, and challenges in insurtechs have driven the decrease.
September 2023
Insurance Insight | Insurance Industry News: Insurers Hit Hard by Hail
In the first half of 2023, insurers suffered $34 billion in losses due to thunderstorms, almost all of which was due to hail. US insurers accounted for 68% of all global natural cat losses through June. Since 2008, the US has not had a year in which losses from convective storms were less than $10 billion. According to experts, the US is prone to thunderstorms due to its geography and topography, but events are increasing in frequency and severity. There were 15 separate weather and climate events that cost $1 billion or more in overall damages in the first half.
August 2023
Insurance Insight | Insurance Industry News: Auto Insurance Premiums Rise 17% in H1 of 2023
In the first half of 2023, car insurance premiums increased 17%, which is more than double the 7% increase analysts had predicted for the year. The primary drivers of the increase are skyrocketing replacement and repair costs and severe weather and catastrophe losses. Offsetting this price increase, the number of drivers purchasing full coverage policies has declined significantly this year. Many are comparison shopping plans and policies, but those in high risk states will likely find limited options.
June 2023
Insurance Insight | Insurance Industry News: Fitch Lowers Outlook on REIT Sector
On June 5, Fitch Ratings reduced its 2023 U.S. REIT sector outlook to Deteriorating, due to ongoing pressure on valuations and fundamentals from higher interest rates and the economic environment. However, it is noted that performance will likely vary significantly by property type over the coming years. While office REITS are significantly challenged by working trends and cap rates, the industrial and specialized sectors, including warehouse, cell towers, data storage and other types, have continued to perform well.
May 2023
Insurance Insight | Insurance Industry News: Insurers Decrease Underwriting Expense Ratios
According to a new AM Best Special Report, the insurance industry’s average underwriting expense ratio decreased from 28.0% in 2011 to 26.3% in 2021, and the net general expense ratio decreased 0.6%. Insurers have found more cost-effective ways to lower expenses, including do-it-yourself home inspection apps, expedited claims payments, telematics to track driving habits, drones to evaluate large scale damage, and more.
April 2023
Insurance Insight | Insurance Industry News: Insurers Increase Membership in FHLB
Data released March 24 by the FHLB Office of Finance show that the combined borrowings taken by non-captive US insurers rose to a new all-time high of $137.1 billion as of Dec. 31, 2022, from $117.2 billion as of Dec. 31, 2021. That figure may have increased again in the first quarter in response to the banking industry stress and overall declines in market liquidity.
March 2023
Insurance Insight | Insurance Industry News: P/C Combined Ratio Hit 104.0 in 2022
Significant growth in Net Investment Income (NII) and positive pricing momentum could not overcome the tremendous weather-related losses and the highest inflation in 40 years. The second costliest catastrophe event on record, personal auto supply chain issues, secondary weather perils, litigation and more contributed to the industry’s estimated underwriting loss of $34.9 billion.
December 2022
Insurance Insight | Insurance Industry News: Highest Combined Ratio in 5 Years
According to S&P Global, preliminary estimates for the combined ratio for the U.S. P&C industry may be 106.6% in the third quarter, an increase from 103.7% in the second quarter. Loss ratios increased significantly in the third quarter across homeowners, commercial multiperil, and fire and allied lines due to Hurricane Ian and higher costs for building materials and labor.
October 2022
Insurance Insight | Insurance Industry News: CECL Implementation Nears
The deadline for implementation of the new credit loss accounting standard, CECL, is nearing. While FASB issued the standards several years ago, the January 2023 deadline is forcing many insurers to more fully evaluate their readiness. CECL impacts a number of financial assets, and compliance will require preparation, model development and validation, updates to controls and parallel processing.
September 2022
Insurance Insight | Insurance Industry News: U.S. P&C Records First Half Underwriting Loss
According to AM Best, the underwriting losses and loss adjustment expenses booked by the U.S. P&C industry during the first half of 2022 increased 15.8% over 2021 for a total of $264.5 billion, $11.4 billion worse than 2021. Although net premiums improved 9.3% and policyholder dividends decreased, the industry posted a $6.3 billion net underwriting loss. The loss was primarily due to the personal lines segment.
July 2022
Insurance Insight | Insurance Industry News: Inflation to Push Combined Ratio Above 100%
A new U.S. Property & Casualty Insurance Market Report projects that the 2022 combined ratio will rise to 100.4%. Although direct premiums written are expected to grow double digits again in 2022, the lingering challenges to the global supply chain will have negative impacts on claims costs, particularly in personal lines. If the economy deteriorates further, a prospective global recession would have a much broader effect from a P&C industry standpoint, with the potential to push losses higher in some business and commercial lines.
June 2022
Insurance Insight | Insurance Industry News: 2022 Insurance Industry Assets Top $8T
According to the NAIC year end data for 2022, U.S. insurance companies reported $8 trillion in total cash and invested assets at year-end 2021, an increase of 7% compared to year-end 2020. The share of bonds in the U.S. insurance industry’s investment portfolio has declined to 61.4% at year-end 2021 from 70% at year-end 2010, while the share of common stocks, mortgages, and Schedule BA assets have gradually increased to 14.6%, 8.3%, and 6.5%, respectively.
May 2022
Insurance Insight | Insurance Industry News: 2022 Insurance Industry Outlook
The markets have been bumpy year to date, but many insurers are expecting a bumpy ride in their overall business forecasts as well. Expectations for growth for the full year 2022 have improved to 3 percent year over year, based on expectations for economic trends, continued COVID recovery, increased needs for insurance coverage and more. However, the forecasts are not without risk.
March 2022
Insurance Insight | Insurance Industry News: Russian Cyberattacks and War Exclusions
The Russian invasion of Ukraine and the increase in geopolitical tensions have increased cyberattacks and the potential for claims on companies that offer cyber coverage. Recent challenges of this coverage have upheld that the “war exclusion” on many policies is not applicable, but with recent cyberattacks linked to Russian hackers amid the ongoing military conflict, this exclusion may be retested.
February 2022
Insurance Insight | Insurance Industry News: Life Insurers Outlook Upgraded Despite COVID
Starting in September 2021 and continuing through the fourth quarter, the COVID virus became more prevalent among Americans aged 35-54 and was one of the leading causes of death among all Americans. Many life insurers reported excess mortality and corresponding losses in the third quarter, primarily driven by the increase in cases. However, AM Best revised its outlook for the life and annuity industry to stable in December.
January 2022
Insurance Insight | Insurance Industry News: U.S. Insurance Companies Raise $93B
U.S. insurers participated in the large debt offerings inherent across the corporate market in 2021, raising $58B in the first half and $35B in the second half of the year. Debt issuance was the majority of the capital raise, accounting for $26B of the $35B total in H2. Preferred issuance was nearly $2B and common equity accounted for $7.3B. Capital raises were spread across the insurance markets, with Life and Health and Managed Care leading the way.
November 2021
Insurance Insight | Insurance Industry News: Exposure to Schedule BA Assets Continues to Increase
According to the NAIC, year-end 2020 Schedule BA assets increased by 13% compared to year-end 2019. Total Schedule BA exposure across the insurance industry represented 6.1% of total cash and invested assets at the end of 2020. Almost every category of asset type saw an increase during the year, including Collateral Loans and Surplus Debentures. However, Hedge Funds, Private Equity, and Real Estate saw the largest percentage increases from 2019 to 2020, and now represent the vast majority of Schedule BA exposure at 70%.
October 2021
Insurance Insight | Insurance Industry News: Insurers Navigate Return to Work Plans
Insurers across the country have delayed their return-to-work plans in light of shifting COVID dynamics and varying vaccination levels. Plans vary widely, from delaying in-office plans to January to requiring on-site employees to be vaccinated. According to a recent PwC study by the Society for Human Resource Management, approximately 68% of corporate executives believe workers should be in the office at least three days per week, although more than half of employees have expressed their preference to stay remote three days per week or more.
August 2021
Insurance Insight | Insurance Industry News: Insurance Industry High Yield Exposure
The exposure to high yield bonds increased for US insurance companies to $286 billion at year-end 2020. While that represents a significant 25.7% increase over 2019, the change in assets as a percentage of Invested Assets was not significant. Cash and Invested Assets for US insurers as of year-end 2020 was $7.5 trillion, and the exposure to high yield bonds was 3.8% of the total. At year-end 2019, the allocation was 3.3% of the nearly $7 trillion in total US assets.
July 2021
Insurance Insight | Insurance Industry News: P&C Insurers Increase Municipal Bond Holdings
Property and casualty insurers reversed a five-year trend in 2020 and increased their holdings in municipal issuers. At year-end 2020, municipal bond holdings were 13.5% of P&C companies’ investable assets and up $11 billion compared to year-end 2019. This increase is primarily due to the stronger financial status for many states and municipalities and improving outlook due to the Cares Act, the ARPA stiumulus, and potential for infrastructure spending.
June 2021
Insurance Insight | Insurance Industry News: Catastrophic Losses Continue
The severe weather freeze events that impacted the South in February, some large wind and hail events, and the lingering impacts from COVID are driving significant catastrophic losses and negative business results for many insurers for the first quarter of 2021. Now the National Oceanic and Atmospheric Administration (NOAA) is predicting a busy 2021 Atlantic hurricane season.
May 2021
Insurance Insight | Insurance Industry News: Interest in ESG Grows Among Insurers
Interest has increased significantly in implementing Environmental, Social and Governance (ESG) factors into insurance company investment portfolios. A recent study by Insurance Asset Management shows that 83% of global insurers are now considering ESG investing, up from 32% in 2017. In the U.S. a significant push toward this framework has occurred due to regulatory and rating agency interest; although that interest seems to be in the Environmental component of ESG.
April 2021
Insurance Insight | Insurance Industry News: Credit Quality Deterioration Impacts Investable Assets
Over the past 20 years, the average credit quality of the Barclays Credit Index has continually moved lower. Today, 55% of U.S. corporate issuers are rated BBB or below. In 2001, just 18% of debt was rated BBB or below. At the same time, corporate debt has grown significantly. Nonfinancial corporate debt increased 54% from 2008 to 2018, and 2020 was another strong year of debt issuance.
March 2021
Insurance Insight | Insurance Industry News: COVID Premium Impact Varies
The global pandemic and the high rate of catastrophes severely impacted insurers in 2020. North American P&C insurers saw significant declines in operating returns on equity in the first half of 2020, and nonlife premiums are expected to decrease 1 percent for the full year in advanced markets and be flat globally.
The 6 C’s of Insurance Asset Management
For today’s insurance C-Suite it can be time consuming to consider a search for a new partner for any service. However, due diligence and reassessment can add value to your goals. Consider, for example:
1. Capability:
What is the depth of experience and knowledge of your portfolio management team? Do they offer the full suite of assets and services you need? Do they understand your insurance industry goals and how the portfolio can help meet them?
2. Customization:
Every insurer is unique. Does your investment manager customize your portfolio or do you look like everyone else? If your goal is to improve Book Yield or to grow Surplus, does your portfolio reflect that?
3. Consistency:
Are the services, team, and performance all reliable? Every year? If your goals include stabilizing Net Investment Income or adding to Surplus growth to help grow underwriting capacity, can you count on your manager to help?
4. Communication:
Does your portfolio team keep you apprised of their thoughts on the market, economy, portfolio needs. Do they ask you for your needs regarding gains and losses, income, risk? Do they help you keep your board informed? Are they a partner or just a service provider?
5. Character:
While this is listed as #5, it is really #1. How does your investment manager show their integrity? Do they treat your portfolio with as much care as if it were their own? Or are they recommending assets to you that benefit their firm?
6. Cost:
This should be considered in the context of value. Low cost does not always equal best. But you are fiduciaries, as are we. Are you getting the highest value for your costs?