P/C Insurance Pricing Cycle to Gain Momentum; Conditions for a Truly Hard Market Not Yet in Place says Assured Research

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New research compares P/C insurance today to the past 3 hard markets; many parallels to the '70s and '80s with one inconvenient truth...returns today are beating the cost of capital.

We see the case for sustained rate increases, but with leading firms already beating their cost of equity in the current trading conditions, it'll take an unexpected shock to turn this into a hard market. Losses from Dorian may prove substantial, but an East Coast hurricane is not unexpected.

According to new research published by Assured Research, a property/casualty (P/C) insurance research and advisory firm, the current firming pricing cycle may exceed the insurance industry's course correction of 6-7 years ago, but it is likely to fall short of the hard markets from the 1970s, '80s, or early 2000s. That is, unless there is an unexpected and material shock-loss that further restricts capital (the supply component of insurance) while simultaneously increasing demand.

According to the firm's president, Bill Wilt, "The conditions for sustained price increases are in place and anticipated losses from Hurricane Dorian will solidify that trend. But absent an unexpected or unmodeled shock loss that simultaneously shrinks capacity while increasing demand, we think this market will fall short of the industry's historical "hard" markets."

The firm's new research includes detailed reviews of the events that precipitated the three hard markets in recent P/C history. For example, the firm examines the political and economic turmoil of the 1970s and its effect on P/C insurers. The genesis of the liability crisis that caused the 1980s hard market is studied and in both cases parallels are drawn to the economic, legal, and social environment of today.

Bringing a unique dataset to bear on the question of the amplitude and duration of the current, firming pricing cycle, Assured Research harnesses the content of its nearly 70-year industry model to compare the insurance industry's financial returns and operating measures today with the conditions preceding and following past hard markets. The Assured Research conclusion: There are reasonable parallels to the past and the conditions for further price firming are in place. But there is also one inconvenient truth - most leading insurers are already beating their cost of capital.

Interested readers are encouraged to contact us through our website to request a free trial to our work, including this study of the P/C insurance pricing cycle.

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William Wilt

Alan Zimmermann
since: 07/2016
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