The 2014 outlook for the global P&C industry is stable
thanks to expected premium growth from the economic recovery and
stable-to-rising penetration rates, Moody’s Investors Service says.
Moody’s says it expects premiums to grow at
low-to-mid-single digits in North America and Europe in 2014, and at
high-single digits or double digits in Asia and Latin America.
A key strength for P&C, Moody’s notes, is the mandatory
nature of major lines, insulating performance from economic-cycle volatility.
Manmade and natural catastrophes remain key challenges, as does pricing and
reserving long-tail lines.
In North America, Moody’s says rate increases are
moderating, “but the cumulative benefit of past increases is still rolling
through earnings, notably in U.S. commercial-liability lines.”
While low-interest rates will continue to hurt investment
income, Moody’s says underwriting discipline is improved in such an
environment.
Moody’s also says it expects reserves to remain slightly
redundant, but with a declining cushion to support earnings.
Meanwhile, Fitch Ratings says the U.S. insurance-broker
industry also has a stable ratings outlook for 2014, as well as a positive
sector outlook due, again, to economic improvement as well as a continuing
trend of commercial price increases, albeit at a slower rate than this past
year.
Fitch tracks broker performance through its industry index
consisting of five publicly traded commercial brokers: Marsh & McLennan
Companies, Aon, Willis Group Holdings, Arthur J. Gallagher & Co. and Brown
& Brown.
Fitch says, “A continued but moderating trend of pricing
improvement in many commercial-insurance-business classes should provide a
tailwind for organic growth at least through the first half of 2014.” Fitch
also expects new-business opportunities to arise due to economic improvement as
well as—for employee benefits brokers and consulting businesses—the evolving
U.S. healthcare environment.
Fitch expects mergers & acquisitions activity to remain
relatively active due to “the historically low cost of debt and improved equity
valuations of potential buyers” to fund purchasers. Fitch adds that it expects
brokers to “continue to supplement modes organic-growth revenue through
selective acquisitions.”
While the ratings agency notes that M&A activity slowed
by roughly 9% in 2013 compared to 2012, driven partially by a decline in
inventory after the active prior year, Fitch says the 2013 second half still
saw some larger acquisitions, including Hub International’s agreement to be
acquired by private-equity firm Hellman & Friedman for $4.4 billion, Arthur
J. Gallagher’s $277 million acquisition of Bollinger and Jardine Lloyd
Thompson’s $250 million acquisition of Towers Watson’s reinsurance-brokerage
business.
Fitch says its outlook could change if brokers were to see a
“material increase in financial leverage and corresponding weaker cash-based
interest coverage ratios,” if the economy were to dip back into a recession or
if pricing was to fall significantly, or if the industry were to experience an
unanticipated earnings decline. On this last point, Fitch says the stable
demand for services provided by brokers makes such a scenario unlikely.
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