ROE for US homeowners to fall in 2021
“These trends present opportunities for insurers to differentiate themselves.” Aon
The return on equity (ROE) for insurers writing US homeowners business will fall by 90 basis points to 5.7 percent in 2021 due to increased losses and further challenged by current macroeconomic and sociopolitical trends, according to Aon’s annual “Homeowners ROE Study”, released on November 1.
The report suggests that for 2021 national carriers will produce a model-adjusted 97 percent combined ratio. Three points of underwriting profit combined with investment income produces a 5.7 percent ROE, versus 6.6 percent in 2020.
Direct written premiums increased to $110 billion in 2020 with a projected $113 billion for 2021 given prospective rate activity (assuming no further growth).
The report noted that the industry faces a unique set of headwinds in 2021: social inflation, supply chain shortages and sociopolitical trends—all driven by the COVID-19 pandemic.
Aon’s annual study delivers a prospective assessment on the US homeowners market based on state and aggregate statutory filing data including reported direct losses, expenses, payout patterns and investment yields combined with replacing actual historical catastrophe losses as measured by Property Claims Services with a modelled view of expected catastrophe loss.
“Although challenging, these trends present opportunities for insurers to differentiate themselves by focusing on claims expertise, expense and operational efficiency, distribution strategy and underwriting excellence,” Aon said in the report.
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US insurers lag Europe in ESG integration
“All three US insurance segments are focused on corporate governance.”
Six in 10 US insurance companies agree that demand from stakeholders to explicitly consider environmental, social and corporate governance (ESG) factors in their decision-making is growing, according to survey results published by AM Best.
Best’s Special Report, “US Insurers’ Perceptions of ESG,” published on November 1, found that, compared with Europe, the US insurance industry is still in the nascent stages of ESG integration.
Given the developing perceptions of ESG, AM Best surveyed rated property/casualty, life/annuity and health insurers and reinsurers operating in the US on their approaches to ESG principles, and found that carriers’ focuses vary by segment.
While property/casualty insurers’ responses showed that they focus more on environmental risks in their ESG engagement, life/annuity insurers said they concentrate mainly on investment risk, given the importance of yields, liquidity and asset-liability matching to their businesses.
Health insurers have put greater ESG attention on the social impacts of health equity, which has been subject to added scrutiny during the COVID-19 pandemic, to eliminate disparities in health outcomes.
The survey found that all three US insurance segments are focused on corporate governance.
“Survey results show that insurers believe there are risks to ignoring stakeholder pressures related to ESG factors, and particularly with regard to diversity and inclusion, carriers generally view corporate governance as key to managing and mitigating reputational risk,” said Rosemarie Mirabella, director, AM Best.
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Global reinsurance outlook remains negative: S&P
“The industry’s capital adequacy has been robust and remains redundant at the ‘AA’ confidence level.”
The global reinsurance sector has generated weak underwriting results in the past four years (2017 to 2020), and 2021 is shaping up to be another below-par year, according to S&P Global Ratings in its Global Outlook Report published on November 1.
The industry continues to suffer from higher frequency and severity natural catastrophe losses, fuelled by rapid urbanisation and climate change. In addition, this year is likely to be the fifth in a row in which the top 21 global reinsurers rated by S&P Global Ratings exhaust their annual natural catastrophe budgets.
The COVID-19 pandemic has further worsened industry losses, especially among these top reinsurers. Despite the elevated losses, the industry’s capital adequacy has been robust and remains redundant at the ‘AA’ confidence level, aided by capital raises and financial markets’ recovery.
“However, the industry faces secular challenges and competitive market dynamics, remaining fragmented as it battles the commoditisation of its business,” said S&P Global Ratings credit analyst Taoufik Gharib.
“Once a competitive advantage, capital now is viewed as a relatively cheap commodity because of the influx to the sector from non-traditional sources, sustained by dovish monetary policies.”
He added: “Reinsurers have struggled to earn their cost of capital, and 2022 could follow the same trend. As a result, we maintain our negative outlook on the global reinsurance sector.”
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Covéa swoops for PartnerRe—again
“Exor believes that following its acquisition, PartnerRe will enter the top tier of reinsurers worldwide.”
Italy’s Exor and French mutual insurer Covéa have rekindled their $9 billion deal for Bermuda-based reinsurer PartnerRe.
PartnerRe is a “natural partner” for Covéa, according to Exor, which purchased the global multiline reinsurer for about $6.9 billion in March 2016 after battling for months with its rival suitor AXIS.
During the years of its ownership, Exor said, it has worked closely with the PartnerRe management team to strengthen and grow the company’s business, creating a sizeable presence in life & health.
Exor believes that following its acquisition, PartnerRe will enter the top tier of reinsurers worldwide, specifically in Europe where Covéa has a strong presence.
Covéa agrees with the view that the two businesses are highly complementary in terms of geographic presences and growth strategy.
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