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Rate increases began to bolster the bottom line for reinsurers during the first half of 2018, and insurers saw added income from higher interest rates and a growing U.S. economy, say analysts surveying the sector’s second-quarter results.
But the 2017 catastrophes, which triggered some premium hikes for insurers and reinsurers, are still affecting results nearly a year later as reserves continue to be adjusted.
“Reinsurance rate increases, which became effective with January 1 renewals are now contributing to income,” said Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. in Baltimore.
“It looks like underwriting results are a little better from a year ago,” said Jim Auden, Chicago-based managing director in the insurance group for Fitch Ratings Inc., which he said looks at about 50 public companies in the sector.
“I think you’ve been seeing some revenue expansion, too, with the pricing environment better especially on property,” Mr. Auden said, adding that pricing has recently stabilized or increased moderately in several other casualty lines as well.
Economic growth and continued interest rate hikes have also helped insurers.
“You’re seeing exposure growth, too, for companies, so that helps in commercial lines,” Mr. Auden said.
Insurers are also benefiting from improved investment income, said Mr. Shields.
“Investment income is picking up,” depending to some extent on the portfolio of the individual company, he said.
“Broadly speaking, the fact that interest rates have been rising for more than a year is now starting to actually demonstrably impact insurance companies’ income statements,” Mr. Shields said.
The sector is thus far faring better than 2017 in terms of catastrophe losses, Mr. Auden said.
Last year’s catastrophe losses, however, continue to hang over the business of some insurers and reinsurers.
“Losses incurred during last year’s catastrophe season — mostly hurricanes but some wildfires — those reserves in many cases, not all, are developing adversely,” Mr. Shields said, adding Everest Re Group Ltd. was the most notable such example in the reinsurance sector.
He said there was also some concerns about liability claims trends.
“Some companies are experiencing an uptick in workers compensation and/or general liability claims,” Mr. Shields said. “Our suspicion is that some companies are recognizing it and some are not, but that was a theme in a number of insurance company calls over the course of the second quarter.”
Property/casualty rates in the U.S. rose 2.5% percent on average in the second quarter of 2018 compared with the first quarter, MarketScout said in a statement.