Unfavorable economic conditions and depressed investment income outlooks will continue to plague growth in the P&C industry at least through 2011 and the beginning of 2012, according to a report released by
Forecasts for closing 2011 figures and projections of the business climate in 2012 are bleaker than previously presented. Since last quarter, the projected return on equity (ROE) within the industry for this year dropped by more than one percent; accordingly, the projected combined ratio worsened from 106.3 percent to 107.2 percent. While 2012 projections remain less elastic because it represents a more distant, unpredictable future, outlooks on premium growth and return on equity continued to worsen.
The unstable economy will continue to hold down projections, as government actions resulting in shrinking yields of low-risk Treasury instruments threaten average investment yields, according to the report—which, in turn, puts pressure on underwriting results and investment managers looking for opportunity. This will continue for the next couple years, as will risks of stagnant, or possibly recessionary, economy.
Cat losses also continue to wreak havoc on financials within the P&C industry, and despite their uncertainty, demand a dent in numbers being forecast. Instability remains rampant, according to the report, which states four of the five major forecast drivers—the economy, the underwriting cycle, catastrophe management, and book yields—continue to be volatile.
The promise comes in year-to-year growth and bets on future stability. While projections have worsened since Conning’s last report, numbers still indicate a hardening market with a positive financial trajectory in the long-term. 2011 is still forecasted to post net premium growth of 2 to 3 percentage points over 2010 figures. And while ROE looks to cancel out hardening premiums and combined ratio will likely suffer as a result of cat losses for 2011, 2012 offers an opportunity to rebound.
Continued premium growth of 1.3 percent, a 1.5 percent boost to ROE and a cut of over 3 percent to combined ratio: Unless economic growth continues to falter and record-setting cat losses strike again, 2012 begin to set positive trends within the industry.
