Keefe, Bruyette & Woods sees property and casualty insurance brokers as "relatively more attractive" than their re/insurer counterparts, noting that carriers would experience greater adverse impact from dampening P&C rate hike expectations, especially if loss inflation accelerates.
KBW believes brokers are poised to see stronger organic growth in 2018 as economic improvement support exposure unit growth and U.S. corporate tax reform drive additional economic activity.
KBW also sees solid acquisition pipelines for brokers in 2018 given the "still-abundant" supply of small and mid-sized brokers. Additionally, lower domestic corporate tax rates and rising domestic interest rates could discourage private equity players from participating in the sector's M&A activity.
In personal lines, KBW noted that "unexpectedly high" claim frequency and/or severity in personal auto prompted insurance companies to roll out rate changes and other underwriting actions. Loss trends are currently moderating, which could mean that insurance companies are ready to focus on growth in 2018. Homeowners' pricing continues to be broadly stable but margin compression is still likely as overall rate hikes trail ex-catastrophe loss trends.
KBW noted that most commercial lines of business are experiencing modest rate increases. The company projects "roughly stable" accident-year underwriting margins for commercial lines, expecting overall loss cost inflation to be manageable despite signs of accelerating loss trends.
In reinsurance, KBW expects midyear renewal rate increases and modestly higher demand, driven by a greater number of risk-affected account renewals.
"We expect 2018 to include the last wave of personal auto margin expansion, some commercial accident-year margin stabilization, and widely-varying company-specific reserve development, punctuated by continued consolidation," KBW said in a March 7 research note.
