A new report from Keefe Bruyette & Woods, “2012 Outlook: Are We Almost There Yet?” says the improving rate environment will boost certain property/casualty insurers.
“We are amidst a cycle shift where prices have bottomed and are selectively rising,” the report states. “What is historically unusual is that this shift is occurring despite solid capital positions, which are allowing many leading players to buy back stock.”
To be sure, the report stresses that operating results and stock performance, will vary widely amongst individual insurers due to the spotty nature of the price increases and an emergence of large loss events. “In our view, the industry is reacting to what appears to be increasingly common ‘unusual’ large loss events and several other steadily building pressures on earnings,” the report states. “As a result, we expect rate improvement to be modest, not uniform and not in any way a traditional hard market. For those well-positioned, this environment could be a boon, but for others, it simply won’t be enough.”
Another mitigating factor will be investment income. “Reserve releases are slowing. Investment yields are dropping. Underlying loss ratios are deteriorating. With only modest offsetting rate increases, we view that the ROE and earnings outlook remains weak for the industry,” the report states.