US P&C 2024 outlook: Pricing push, M&A rebound, insurtech challenges

Pricing power, a more active M&A atmosphere and a challenged insurtech sector are front and center for US property and casualty insurers in the new year after some wins and losses in 2023.

Some insurers, particularly Florida-based carriers, will recall 2023 as a year when they caught a break from heavy catastrophe losses because of a relatively calm Atlantic hurricane season. Hurricane Idalia, which struck Florida's Gulf Coast on Aug. 30, was the lone major hurricane to make landfall on the Atlantic and Gulf coasts.

The Sunshine State insurers also got relief from tort reforms included in House Bill 837, which went into effect on March 24. The new law eliminated one-way attorneys fees and fee multipliers, changed standards regarding comparative negligence and modified bad-faith rules when insurers are sued.

But it was not all sunshine for the P&C sector. Carriers such as The Allstate Corp. and The Travelers Cos. Inc. were dogged by severe weather events in almost every corner of the US. A record 25 $1 billion weather events led to heavy cat losses in every quarter, including the firestorm that swept across Maui on Aug. 8.

Private auto insurers, meanwhile, continued to be plagued by sky-high claims costs. Carriers compensated for the losses by taking advantage of a hard pricing market by pursuing approval of rate increases from state regulators.

Pricing power in 2024

The pace of pricing picked up in 2023, particularly in the private auto space, where carriers continued to feel the pressure from elevated levels of frequency and severity. The question is whether insurers will continue to benefit in 2024 from those pricing efforts, said CFRA Research analyst Cathy Seifert.

"I think investors are going to be focused on the degree to which pricing strength and demand continue," Seifert said in an interview.

The Hartford Financial Services Group Inc. CEO Chris Swift said during a conference call that his company will need significant rate increases throughout 2024 for its personal auto line to return to profitability.

"We think we need back-to-back years of about 20 points of rate increases in [2023 and 2024] in the book to get us to a place to be in a position to have targeted profitability in early 2025," Swift said.

Seifert said that while the expectation of an easing of inflationary pressures will help underwriting performance, "profitability in the auto space is certainly not what it used to be and I think that's another area people are going to focus on."

Convective conundrum

On the property side of the book, Mike Prindle, leader for Complex Property for Denver-based broker CAC Specialty, said that rate and retention increases have been "pretty much the norm" since the second half of 2017 and that 2023 was "one of the worst years we've seen ... from the buyer perspective."

Prindle said that while he expects pricing to moderate in 2024, the industry is still grappling with how to price for risk from the convective storms that have ravaged the Midwest and Southeast. He said that while insurers are modeling for such storms, the data is not as reliable as it is for risks such as hurricanes.

"I don't know how you model for an F5 tornado going through Kansas, so I think the industry is grappling with that a little bit," Prindle said in an interview.

What is known, Prindle said, is that such events are occurring more frequently and that many of the cat losses for the first half of 2023 were convective storm-related. He said insurers are "pulling two levers" when it comes to convective storms, pushing percentage deductibles and managing their line of business.

"If it's heavily convective storm exposed, you'll see carriers start to put up less capacity," Prindle said.

M&A activity to improve

There was a modest increase in M&A activity connected to underwriters in the first half of 2023. There were 69 transactions in the period, 39 of which were in the second quarter, compared with 55 a year ago; however, the value of those transactions barely rose above the prior-year total to $12.53 billion from $12.51 billion.

Three of the top four first-half transactions involved reinsurers Brookfield Reinsurance Ltd. and RenaissanceRe Holdings Ltd. Brookfield's June 26 acquisition of American Equity Investment Life Holding Co. topped the list with a $3.59 billion transaction value, while its acquisition of Argo Group International Holdings Ltd., completed on Nov. 16, was valued at $1.06 billion.

RenRe made a splash with its acquisition of Validus Reinsurance Ltd. from American International Group Inc. in May for $2.99 billion.

Seifert said the reinsurance space could produce further M&A transactions, such as the absorption of smaller players, and she believes some life insurers could be targeted.

"There are some [life insurers] who continue to put up restructuring and [reorganization] charges, moving things around, and results are not yielding much success," Seifert said. "I think that those companies could be subject to some activism as investors kind of want more aggressive actions taken to spark share prices."

Lines blurring for insurtechs

The main goals for US insurtechs in the coming year are firming up their underwriting and pricing strategies while ensuring they can acquire and serve customers cost-effectively, said Kaenan Hertz, managing partner at Insurtech Advisors LLC.

This struggle comes as the gap between insurtechs and incumbent carriers shrinks as the latter become "much more sophisticated" in terms of using technology, he added.

"The insurtechs need to understand that they need to behave more like a real carrier, which means you have to have an underwriting accuracy and you have to have expense control," Hertz said.

However, as talk of partnerships continues, Hertz said he expects M&A to accelerate in the sector, but more for privately backed companies.

In addition, deals are likely to be insurtech-to-insurtech or involve service providers like consulting firms with large insurance practices that might be interested in acquiring this kind of technology.

In addition, a third-party administrator, such as Sedgwick Holdings Inc., might be interested in such an insurtech deal, according to Hertz. He added: "As they're administering claims, maybe there's a solution out there that is better than their current solutions, or the cost to acquire something will be less than the cost to ... build from scratch."