Conning: Insurers Must Adapt to Changing Landscape, Not Wait for Improvement

With economic, interest-rate and competitive challenges expected to persist through 2013, part of the title of Conning Research and Consulting's latest report aptly sums up the firm's recipe for insurance-industry success in a year marked by numerous headwinds: “Nothing to Be Gained by Waiting for Things to Get Better.”

The report's theme is reinforced perhaps most clearly when Conning discusses the investment landscape for insurers. “Continued low interest rates will drive investment yields and investment income lower. Companies will be compelled to find a way to move forward, no longer willing or able to wait for an improving interest-rate environment.”

In the report, whose full title is “U.S. and Global Insurance Industry Outlook: Economic, Capital Markets, and Regulatory Challenges Continue—Nothing to Be Gained by Waiting for Things to Get Better,” Conning questions if this new reality will drive changes in insurers' investment portfolios, but the firm notes that so far there have been “relatively few significant actions.” 

The report also discusses how insurers are responding to increased catastrophes. 

“For insurers, the magnitude of losses has been less at issue than the type of loss and where they have occurred,” says Conning. The firm says high losses in the Gulf of Mexico in 2004 and 2005 drove insurers to shift exposures to the Midwest, only to see two of the highest years ever for U.S. tornado losses in 2008 and 2011.

Cat-loss experience since 2004 has averaged around $24 billion per year, or 5.4 points on the loss ratio, Conning says, noting that this is much higher than the average of the preceding 10 years.

“In 2013, we expect the industry will experience a repricing of Midwest property exposures, at both the primary and the reinsurance levels,” the report adds. 

For the P&C sector in general, Conning describes the landscape as constrained, if gradually improving. It forecasts moderate premium growth and modest underwriting losses for 2013 and 2014, “assuming a 'normal' level of catastrophe loss activity.”