31 January 2013 Insurance

Downturn has strengthened P&C underwriting discipline

The economic downturn has forced property/casualty (P&C) insurers to become more focussed on underwriting discipline and less reliant on investment returns, recent reports by rating agency Moody’s has claimed.

Whereas in the past many P&C insurers would chase market share through offering lower premiums, while making a healthy return from their investments, the non-existent interest rate environment has forced companies to change their behaviour. This is a positive for the P&C industry, according to Simon Harris, managing director at Moody’s Financial Institutions Group.

“It is focussing insurers on good underwriting and taking appropriate insurance risk. A lot of companies are now doing that, so that’s a positive,” he said. “While there are still some companies who are chasing market share, the overall recognition that investment returns are much lower, and are likely to stay like that for some time, has strengthened underwriting discipline across the board.”

The reports, called ‘Global Life Insurance Outlook – 2013’ and ‘Global P&C Insurance Outlook – 2013’, also said that because many P&C products are mandatory under law, demand for these products has remained relatively stable in comparison to more discretionary products, such as life insurance.

P&C insurers have also shown more resilience to the economic problems around the globe than life insurers in terms of bottom line performance, according to Harris. Whereas the underlying return on life insurance contracts tends to be heavily related to investment returns, the P&C market is more dependent on premium income and loss experience, which is not correlated with economic performance.

“From that perspective P&C is in a slightly more stable position than life insurance,” said Harris.

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