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Property/casualty insurers eye opportunities for growth

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Pricing strength and emerging risks are two of the forces shaping the moves of U.S. property/casualty insurers as they raise capital levels to capitalize on potential growth opportunities, according to a report by Guy Carpenter & Co. LLC.

The sector has bolstered its capital over the past three years, according to the reinsurance broker, taking its collective capital position from $686 billion to $767 billion, a 3.8% compound annual growth rate.

The capital expansion occurred despite what the broker called “a period when the normalized return profile of the P&C underwriting business was considered to be below the cost of capital.”

Opportunities with emerging coverages, including cyber and mortgage insurance credit risk, may be capitally intensive, spurring players to build a larger war chest. Optimism over pricing may also be driving insurers, the report said.

“One reason for carrier capital-building would be an expectation that pricing trends will improve,” Guy Carpenter said, adding that the industry saw modest pricing gains during 2018 in most major lines except for workers compensation.

“This growth in capital would indicate that management teams might be expecting this trend to continue,” the report said.

The broker also noted, however, that the rise in capital could be insurers’ response to perceived challenges ranging from rising interest rates to an increase in loss frequency and severity in many lines, including commercial auto, workers compensation and property in recent years.