Rising prices support property/casualty insurers' 2013 results: Analysis

Rising prices in certain lines of business bode well for the financial results of the property/casualty industry in 2013, a report issued Thursday by Keefe, Bruyette & Woods Inc. finds.

The industry's first-quarter results likely will be solid, according to the New York-based investment bank's report said.

“Excluding some manageable losses from Winter Storm Nemo, the weather was rather benign, while commercial lines' rate increases are holding and personal lines' rate increases are modestly accelerating,” the report states. “As we head into 1Q13 earnings season, we're less worried about insurers and brokers missing consensus estimates than we are about management rate outlook commentary falling short of investors' expectations relative to the sector's strong (year-to-date) performance.”

The report notes that with the exception of areas affected by Superstorm Sandy, rate increases for small accounts and casualty lines likely will outpace the increases expected for large accounts and property catastrophe pricing.

Moreover, the report says price increases will vary by line of business. “Individual lines' increases show a little more volatility, with accelerating increases in professional liability, commercial auto, and umbrella and excess balanced by modest deceleration in general liability and workers compensation where, not coincidentally, rate increases emerged earlier,” the report states.

One possible challenge to the industry's financial performance is dwindling prior-year loss reserves, the report concludes. “Industry reserve releases have been fading, which could drastically accelerate if any or all of general inflation, medical inflation and/or social inflation pick up,” the report states.