S&P ratings turn negative for property insurers, losses amid weak credit trends
S&P Global’s (NYSE:SPKE) the ratings department said, prompting it to revise its stance on the sector to negative from stable.
Credit trend weaker than expected to continue this year, the company ranks speak. The shift in stance reflects the negative impact of rising interest rates on capital and, consequently, a decline in the market value of fixed-income portfolios in the AOCI (area comprehensive income). other cumulative), and negatively impact legal capital and income from equity investments of lower value.
It also reflects a steady increase in the capital needed for business growth, a higher return on equity to shareholders, and weaker underwriting results due to disaster losses and high claims costs. than.
Underwriting performance worsened in the first 9 months of 2022 at a combined rate of 102.3% (loss incurred divided by premium earned) from 99.6% in the year-ago period, according to S&P Market Intelligence. S&P Ratings expects a 2022 combined ratio of 101% -102%, influenced by declines in individual lines.
The ratings company expects individual auto insurers to continue to pursue mid-to-higher single-digit rate increases to keep pace with higher claims costs.
It said these price increases, which have slowed over the past two years, are likely to stabilize at 5%-7% for standard trade lines and remain at or above cost trends. damage.
“These expectations should lead to a modest improvement in the industry’s statutory combined ratio to 99%-101%, assuming disaster losses contribute around 8 points,” said analyst John Iten. percentage to the loss rate”.
The guidance assumes that the U.S. economy does not deteriorate beyond S&P’s prediction of a modest GDP decline of 0.1% in 2023, as the country enters a shallow recession. It is expected to recover to 1.4% growth in 2024.
“While recorded loss/property direct premium growth has generally paralleled nominal GDP growth, the two are likely to be different in 2023 as exposure assets lines earn in 2022 rates of increase and exposure base increases due to inflation.” He said inflation could peak in the third quarter of 2022, but is expected to remain high through the end of 2024.
Trade line pricing will also remain favorable, further supporting the difference in GDP and direct premiums written. S&P forecasts the unemployment rate will rise to 4.9% in 2023 and 5.3% in 2024, which will reduce workers’ compensation premiums and partially offset premium growth direct danger is written.
During the past year, the SPDR S&P Insurance ETF (Kieu Ky) has increased by 11%, far exceeding the 5.2% the decline in the Select Sector SPDR Financial ETF (XLF) and 6.2% decline in the S&P 500 Index.
Previously, BMO Capital was selected in insurance stock options.