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S&P Global Ratings analysts: Rate hikes needed at P&C, reinsurance companies

Property and casualty insurers, as well as reinsurers, need rate increases in order to maintain their financial performances, according to S&P Global Ratings analysts.

S&P Global Ratings has stable outlooks for life, property-and-casualty and reinsurance businesses for the near term, but the latter two will need adjustments to premium rates, analysts said during a conference call presentation. The P&C sector owes its stable outlook to strong earnings and to the industrywide capital adequacy stockpiled to cover payouts, analyst Tracy Dolin-Benguigui said. The combined ratio for the sector was more than 100% for 2016, and is expected have been around 105% for 2017. The ratio should come down for 2018, but even with recent rate increases, it is anticipated to hover around the 100% threshold for long-term profitability, she added.

"The pricing increases we're seeing doesn't really show a true market correction," Dolin-Benguigui said.

For reinsurance, rate changes for the January renewal period have been flat to up 5% globally, said reinsurance analyst Taoufik Gharib. Rate increases for casualty reinsurers have slowed without much change to losses, and the combined ratio was break-even at year-end 2016 on an accident-year basis, Gharib said.

"The industry needs to push for rate increases to remain profitable from an underwriting perspective," Gharib said. Reinsurance has benefited from robust capital adequacy that helped companies withstand competitive pressure and manage catastrophe events. The sector still faces challenges from the entry of alternative capital and the centralization of reinsurance purchases on the part of the large cedents, according to presentation material accompanying the discussion.

The fundamentals for the life insurance sector are strong, analyst Deep Banerjee said. Nearly all ratings actions taken on life companies in 2017 were driven by M&A, and Banerjee expects that trend to continue.

"Rating actions will be driven by external events," Banerjee said. "M&A will be one such event."

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.