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A survey of 20 property/casualty insurers, reinsurers and brokers showed strong 2018 first-quarter organic growth and investment income, although some players may seek mergers and acquisitions due to smaller-than-expected increases after last year’s historic catastrophe losses, Morgan Stanley said Friday.
Average organic growth in the first quarter improved to 4.6% from 3.8% in first quarter 2017, Morgan Stanley said in its 1Q18 Review, released Friday.
Growth is expected to continue to improve, the bank said. “Organic growth should improve throughout 2018 with growth of global economies and rising (property/casualty) pricing,” the report said.
Companies saw an average 2.8% yield on investments, flat with the year-ago quarter, though the report described it as “Strong.”
“Investment income remained strong in 1Q18, largely driven by an increase in the invested asset base,” Morgan Stanley said.
The report suggested that recent merger and acquisition activity may be linked to smaller-than-expected increases at Jan. 1 renewals, and that a similar such showing at June 1 could accelerate activity.
“We think the somewhat disappointing Jan. 1 renewals may have contributed to recent wave of reinsurance M&A,” Morgan Stanley said. “A further deceleration at June 1 renewals could challenge the long-term property (catastrophe) reinsurance business model — reinsurers get payback in higher prices after large losses. This could push more boards and managements to rethink their long-term business strategy and lead to more industry M&A.”
Profitability declined in the U.S. property/casualty industry in 2017 as increased losses and loss adjustment expenses offset growth in net premiums, according to an A.M. Best Co. report Monday.