Insurance, reinsurance rates forecast to rise in 2019: KBW

Commercial insurance and reinsurance pricing should increase in 2019, according to a report released Wednesday by Keefe, Bruyette & Woods Inc.

“We expect modestly better reinsurance and commercial — particularly specialty — lines pricing (including smaller workers compensation decreases),” the New York-based investment banking firm said “2019 Outlook: Focus on Commercial Lines and Bermuda for 2019.”

“We expect most commercial lines’ rates to rise in response to weak underwriting profits, although workers compensation rates should keep falling, probably more slowly than in 2018,” wrote KBW analysts in the report. The report said that this year’s large catastrophe losses and “some ILS investor disappointment” are expected to boost reinsurance pricing.

The report said that rising interest rates should sustain investment income growth — including the brokers’ margin-boosting fiduciary investment income. But it added that “reportedly-rising loss cost inflation suggests that higher interest rates probably won’t impact commercial lines’ rate increases.”

KBW also expects merger and acquisition activity in the insurance brokerage sector to continue next year. That will reflect “long-term structural trends favoring greater scale and product breadth, although higher interest rates could somewhat slow deal volume.” The report added that KBW does not think higher interest rates “will materially impede” insurer M&A, “which should persist as insurers seek broader product portfolios and potential scale-related expense benefits.”