Posted on 23 Apr 2013 by Neilson
Eric Silverstein, a senior vice president with Lockton, spoke with Best's News Service about carriers increasingly focusing on return on equity. Silverstein, attending the Risk and Insurance Management Society's annual conference in Los Angeles, said the industry will "push for a 10% return on equity" and that the reinsurance market should continue to be stable.
Q: You just finished up a presentation, and part of what you spoke about was return on equity. What are you seeing?
A: We're seeing carriers focus on return on equity. That is their yardstick in terms of profitability. As of now, return on equity is hovering at about 5%. We expect the industry to push for a 10% return on equity. Based on the current investment environment, we would anticipate that it will take somewhere into 2014 to 2015 for insurers to increase their return on equity to their targets, and consequently, we see a continued hardening market.
Q: With that hardening market, what are you expecting in the way of rates?
A: We anticipate rates to hover in single or the high-single digits. However, if your risk profile happens to be below average, we would anticipate rates to be in excess of 10% or increases to be in excess of 10%. For insureds with good risk profiles, there is opportunity, and there's opportunity for savings and there's opportunity for taking a new way to look at risk that is more effective and more efficient.
Q: Eric, what impact do you expect all of this to have on the reinsurance market?
A: We see the reinsurance market as being somewhat stable. We do not see the reinsurance market as going in and providing additional capacity. There's plenty of surplus in the system right now. The fact of the matter is that reinsurance is now drawn to higher returns on equity or lines of coverage where they would anticipate making higher margins, not simply in a way that you may anticipate in prior years, which was, "Let's get as much premium in the door as we possibly can."