S&P Global Ratings maintained a stable outlook for the U.S. property and casualty insurance sector.
The industry's capital strength, conservative investment strategies and underwriting discipline support the rating agency's view.
The uptrend in pricing is likely to continue into 2020, with steeper rate increases seen in commercial auto, large account property, financial, and professional lines, the agency said. S&P Global Ratings characterized the hardening rate cycle as loss-cost driven rather than capital-replenishment driven, noting that prolonged pricing complacency could prove to be more "immediate yet less palatable impetus for this hardening pricing cycle."
The agency found continued reserve releases "worrisome," but it remains "cautiously optimistic" that aggregate reserve development for the industry will remain favorable given the steady positions for short-tailed lines and improving workers' compensation loss emergence. S&P Global Ratings also expects to see more reserve strengthening for vulnerable business lines including commercial auto and long-tailed casualty lines.
The M&A activity is expected to continue at a slow pace in 2020 as current valuations make acquisitions expensive, S&P Global Ratings said. The insurers are more likely to pursue bolt-on opportunities aimed at enhancing market positions or underwriting strengths. However, the agency did not rule out the possibility of blockbuster deals.
S&P Global Ratings believes that large personal line writers could look to enhance capabilities and build a commercial presence potentially through M&A. The agency is also seeing carriers pursuing technology-targeted bets, while some insurers have also expanded their appetites to chase noninsurance opportunities.