KBW’s Shields: Investors to focus on rate deceleration during Q1 results season

KBW analyst Meyer Shields has predicted insurers will report only a marginal slowdown in rate increases during the first-quarter earnings season as the industry continues to take steps to address ongoing loss cost inflation.

In an interview with The Insurer TV, Shields said investors will be closely monitoring pricing trends as carriers report over the coming weeks given the impact of claims inflation on underlying performance across multiple lines of business.

“The primary focus for investors will be the pace of deceleration of rate increases for those specialty lines of business that have been experiencing increases – whether excess and surplus lines, Lloyd’s of London or reinsurance – and what that means for underlying loss ratio progress,” he said.

Shields said he was anticipating insurers will report “very slow deceleration of rate increases” over the coming weeks.

He noted the substantial increases implemented in recent years had largely addressed the need to drive performance improvement, but said the ongoing rise in loss costs meant additional increases would be required to continue current levels of profitability.

“With loss cost inflation so high, we will see continued rate increases but this is now largely a function of maintaining profitability rather than improving profitability. That means less rate increase is now needed to maintain adequate returns.”

He said investors would likely be closely monitoring personal auto trends, describing the line of business as a “dramatic underperformer”.

“Investors will want to get a handle on how long it will take before adequate profitability is restored,” he said.

Russia-Ukraine impacts

“We also expect a lot of questions around the impact of the war between Russia and Ukraine and how much of that burden the industry will have to bear,” Shields continued.

However, he said the likely impact on Q1 results from the conflict will be moderate, with the majority of any losses incurred booked in future quarters.

“Some of the loss estimates out there include cyber-related losses that probably haven’t been incurred, much less identified yet,” he explained.

Shields said many of these claims will likely be subject to litigation with questions around policy cancellation periods at the point claims were triggered.

He said claims numbers related to the conflict booked during Q1 will be “relatively low compared to the industry-wide loss estimates that are out there”.