Is insurer profitability sustainable?

Is insurer profitability sustainable?

Is insurer profitability sustainable?

Growth seen by insurers in the last financial year raises “question marks” around sustainability, an expert has said.

Kevin Gomes, Taylor Fry principal and senior actuary, said that insurers have been able to rely on reserve releases, which have acted as “material drivers” to ensure profitability over recent years - but that may soon come to an end.

“If you look beyond the headline numbers on profitability, what you do notice is it is really dependent on reserve release,” Gomes told Insurance Business. “You can’t keep getting those releases indefinitely.

“While insurers did have quite a profitable year during 2017, if you stripped away the impact of reserve releases, it was a lot less profitable than it appeared. That is kind of the unfortunate part of the profitability, so there is a question mark over how sustainable it was.”

As part of their recently released Radar study, Taylor Fry found that the insurance market continues to harden, particularly in commercial classes - which Gomes said was long overdue. These pricing rises can help insurers stave off profitability concerns – but they need to continue into 2018.

“They [insurers] do need to continue trying to drive premiums up and keep the claims under control to get more sustainable profitability,” Gomes continued. “The commercial insurance cycle… is showing clear evidence of having turned during FY17 and it is continuing on in what we have seen in financial year 2018 as well.”

In addition, he noted that commercial property saw the biggest increases over the course of 2017, while casualty classes are seeing a “shallower” hardening, aside from D&O.

“Commercial property was probably the one that hardened the most in 2017 and it is the one we expect to harden the most in 2018,” Gomes continued. “Those are the most cyclical - so when we say the cycle has turned it has been quite a hard turn in the commercial property classes but a shallower turn in commercial casualty classes.

“Those classes were shallower in 2017 and it is our expectation that it will be shallow again in 2018.”

 

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