Insurers across all sectors—Property & Casualty, Life/Annuity and Health—shared their views on a range of topics from the economy to industry competition in A.M. Best's Winter 2015/2016 Insurance Industry Survey.

Michelle Baurkot, assistant vice president at A.M. Best, says the Commercial Lines outlook has been negative for some time, and while A.M. Best expects most ratings actions to be affirmations, rates are under pressure and concerns remain regarding the industry's reserve levels.

For Reinsurance, Baurkot says the combined ratio has been creeping up, and challenging conditions are putting pressure on margins.

The majority of the survey's respondents anticipate conditions across all segments to be stable, except for Health, where nearly 55% view conditions as negative.

Asked about the leading disruptors over the next five years, the most common responses were economic events (22.6%), capital markets (14.5%) and political events (13.4%).

Targeted returns for 2016

Forty-six percent of insurers expect returns on equity between 8% and 13%, while just 9.2% expect returns over 14%. Life/Annuity insurers were more optimistic than P&C carriers: For P&C, 48% expect returns of 7% or less, compared to 33.3% of Life/Annuity companies. Meanwhile, 40.5% of Life/Annuity companies expect returns on equity of 11% or more compared to 25.5% of P&C companies.

Baurkot says expectations have fallen “quite a bit” in recent years, with a notable downward trend since 2014.

Competition and the economy

Competition from regulatory changes and from new market entrants decreased in this survey compared to Fall 2015 (from 8.1% to 5.9% and from 11.7% to 9.1%, respectively). Meanwhile, competition from existing players jumped from 36% in Fall 2015 to 44.1% in the current survey.

For P&C insurers, Baurkot says access to capital may be playing a role in the increase in competition from existing players, in addition to the current pricing cycle. Rates are low in most lines, fueling competition, she says.

On the economy, just 5.4% of insurers say economic conditions will improve this year, while 30.4% expect conditions to deteriorate. Another 46% expect conditions to remain stable.

Predictive analytics

Less than half (48.9%) of insurers say they use predictive analytics. For those that do, underwriting was by far the most significant area of focus (82.2%), followed by claims (39.7%).

By line of business, predictive analytics is used most frequently in Homeowners (42.6%), followed by Private Passenger Auto Liability (41.2%) and Physical Damage (39.7%). There is a noticeable drop-off in use among Commercial Lines coverages, with Workers' Comp leading the way (27.9%).

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Insurers Lower 2016 Targeted Returns

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