After years of benign claims and softer premiums, non-life insurers have been hit with an estimated $136bn (£100bn) of claims following a string of natural catastrophes. US property lines, for example, are seeing premiums jacked up by between 10 per cent and 50 per cent, and in the market as a whole premiums are hardening.
Premiums are also hardening in motor insurance in the UK, where insurance companies were badly hit by a change in the way that compensation payments are calculated. The government has subsequently backtracked and the change in the so-called Ogden rate is likely to be less onerous than initially feared.
Even so, while discussions continue, the uncertainty has already prompted a noticeable increase in motor premiums. This is positive news for insurers, who experienced a de-rating in the third quarter as premium increases stalled.
Insurance companies are well placed to meet the cost of claims, with very strong balance sheets. However, one aspect that is unlikely to change is the paltry investment return earned on reserves, as interest rates remain anaemic. Another key factor affecting future profitability is the extent of reserve releases. These are funds released from provisions made for claims in earlier years, and in Europe as a whole these have been accounting for around 20 per cent of pre-tax profits. The worry is that, notably in the UK, these releases have reached unsustainably high levels, suggesting that future profitability could be trimmed as releases decline.
This hasn’t stopped new entrants joining the market, with the likes of Hastings (HSTG) showing that the right business model can still pay dividends despite the cut-throat competition. And another new entrant could be Amazon, which is recruiting insurance professionals in London. Applying its own focus on putting customer needs first, a survey suggested that nearly a fifth of consumers would consider using Amazon for motor and home insurance.
Overall, the property and casualty insurance sector looks set to grow, mainly as a result of greater penetration into emerging markets such as China, where GDP growth for 2018 is forecast to be in excess of 6 per cent. On the downside, climatic changes are putting large areas of coastal zones at increased risk, and losses in 2017 from weather-related incidents were greater than in any other year.
| Company | Price(p) | Market value (£m) | PE Ratio | Yield (%) | 1-year change (%) | Last IC view |
| Admiral | 1,877 | 5,390 | 23.8 | 2.8 | 6.9 | Hold, 2,009p, 17 Aug 2017 |
| Beazley | 527 | 2,771 | 10.8 | 2.0 | 34.5 | Hold, 513p 24 July 2017 |
| Direct Line In.Group | 372 | 5,118 | 12.7 | 3.9 | 7.3 | Buy, 396p 1 Aug 2017 |
| Esure Group | 246 | 1,027 | 15.9 | 5.5 | 22.3 | Buy, 297.8p 3 Aug 2017 |
| Hastings Group Hdg. | 307 | 2,015 | 25.8 | 3.5 | 33.4 | Buy, 327.3p 9 Aug |
| Hiscox (Di) | 1,420 | 4,075 | 14.3 | 2.0 | 39.4 | Hold, 1.331p 1 Aug 2017 |
| Jardine Lloyd Thompson | 1,422 | 3,115 | 29.3 | 2.3 | 42.6 | Hold, 1,185p 28 Jul 2017 |
| Lancashire Holdings | 661 | 1,331 | 11.3 | 0.0 | -4.6 | Hold, 740p 17 Fev 2017 |
| RSA Insurance Group | 624 | 6,380 | 19.6 | 2.8 | 9.9 | Hold, 644p 3 Aug 2017 |
