April 11th, 2017

Assessing Insurers in a Period of Rapid Change: Insurance Equity Analyst Survey 2016

Posted at 1:00 AM ET

Guy Carpenter has collaborated with Mercer to survey insurance equity analysts to understand the possible objectives and aspirations of insurance company shareholders. Incorporating or at least considering the views of various stakeholders will be critical for insurers in ensuring that they are moving along the right path, especially in this uncertain environment.

Insurance Equity Analyst Survey

The Insurance Equity Analyst Survey covers four main topics: Insurance equity valuation and drivers of performance, underwriting policy, investment policy and market risk, and mergers and acquisitions (M&A). Some of the interesting results in each area are highlighted below:

Underwriting exposures: Analysts typically favor companies that are reducing probable maximum losses (PMLs) in the current rate environment. However, they would generally prefer insurers to reduce these by writing less business rather than with retrocession.

Turn of the underwriting cycle: Reserving deficits are cited as the most likely factor to turn the underwriting cycle and bring an end to the current soft rate environment, although the consensus is that the effects of this will take some time to emerge.

Investment risk-taking: Most insurers have been increasing the level of market risk taken in reaction to the low-yield environment. However, for life companies in particular, many analysts feel insurers have gone too far and are now taking an excessive level of risk.

Focus of investment approach: Analysts express a strong preference for adopting a risk-focused approach to investments - preferably a robust asset liability management (ALM) approach rather than one that focuses on superior return generation.

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