Is the property & casualty insurance economic picture better from the outside looking in, or the inside looking out? A panel of outside experts, followed by a panel of insurance company CEOs, considered this question at the Property/Casualty Insurance Joint Industry Forum, held Jan. 13 at New York's Waldorf-Astoria.

When asked by moderator Robert P. Hartwig, president of the Insurance Information Institute and an economist, about the 2015 financial outlook for P&C insurers, experts describe the economic picture as mixed, with all lines facing rate pressure. Matthew Mosher, senior vice president, Global Ratings at A.M. Best Co., says that personal lines should be stable on rates and loss costs; however, he has a more negative outlook for commercial lines. Reinsurance companies, especially, are dealing with rate pressure, new entrants into the marketplace and shrinking reserves.

Vincent J. (V.J.) Dowling, managing partner of Dowling & Partners, says he is increasingly concerned about low interest rates continuing for a long time, which lets the government help borrowers—not savers, such as the insurance industry. He notes that about 40% of revenue for insurance companies is from their underwriting profits. The companies aren't earning much in investments with only single-digit returns.

Former Connecticut insurance commissioner Thomas B. Lombardi, a senior insurance advisor at investment banking advisory firm Evercore, says that the high margins in reinsurance are eroding the market. The issue is that historically low yields on bonds and nontraditional players exist in the market. In addition, regulators don't completely understand the risk this group faces. Due to these factors, he says that the small players will get left behind.

The experts agree that competitive pressure is restraining, with minimal to no growth in personal lines claims. For example, safer autos and social pressure for driving safely contributed to fewer accidents. With fewer accidents, companies have less justification to increase premiums, leading to more intense competition on rates and long-term revenue decline. Homeowners claims, by comparison, are projected by Dowling to be bigger than Auto over the next 15 years.

When asked about industry consolidation, Dowling says that he has seen more change in the last three years than in the previous 30. The influx of third-party capital—from pension funds and hedge funds, for instance—is changing the underlying economies of the industry.

The panel of CEOs also considered the P&C insurance financial picture, and their views are mixed. When the moderator Bradley L. Kading, president and executive director for the Association of Bermuda Insurers and Reinsurers, asked for predictions, Paula Downey, president and CEO of CSAA Insurance Group, a AAA Insurer, says that from a personal lines perspective, she thought the outlook was stable. She agreed that there would be relatively low growth rates for Auto and Homeowners coverage, noting that new car sales are up but new home sales are not.

Jaime Tamayo, president and CEO of MAPFRE USA, says that he sees excess capital in U.S. P&C companies. He advises insurers to either accept low returns on equity or put their capital to work. The biggest challenge to Tamayo's personal lines business is the unpredictable weather pattern, causing losses that are less than catastrophic but significant nonetheless. The low interest rate economic environment and compressed margins also are concerns.

Henry Klecan, managing director, P&C and Life operations for SCOR, a global reinsurance company, says that the equity returns are “not spectacular,” but the balance sheet is strong. For 2015, Klecan said that commercial lines companies need to become smarter about risk selection and they need to understand their customers better.

Steven D. Linkous, president and CEO of The Hartford Mutual Insurance Cos., reminded the audience to “remember you're an insurance company and make good underwriter decisions.” If companies can follow this advice, they can remain profitable for 2015, despite the economy's ups and downs.

Special Reports /

P&C Outlook Stable but Under Pressure

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