The latest capital poll conducted by Aon, a global insurance and reinsurance broking group, unveils significant expectations and insights into the projected growth of US insurers by 2025. An overwhelming majority of US insurers are optimistic about their growth prospects, with most expecting to exceed a growth rate of 5%. This forecast comes as a breath of fresh air for the insurance industry, indicating a promising upward trajectory that spans various sectors within the market. The data gathered sheds light on the optimistic sentiment prevalent among insurers and the factors driving this anticipated growth.
Optimistic Growth Projections
A central theme in Aon’s survey is the optimistic forecast for direct premium growth. Specifically, 44% of the respondents anticipate a growth range between 6-10%, while another 26% project even more robust growth of over 11%. Simultaneously, 23% of insurers foresee moderate growth of 1-5%, whereas a minimal 7% predict their growth could remain flat or decrease. This highlights a prevailing positive sentiment across the industry, driven by factors fostering a conducive environment for growth.
Specialty insurers are particularly bullish about their prospects, with no anticipation of decreasing growth. This sentiment is largely attributed to the positive momentum in the Excess and Surplus (E&S) market. The outlook for commercial insurers is equally optimistic; about half of these insurers expect to grow by 6-10%, and 36% expect slower but positive growth of 1-5%. Personal lines insurers show similar expectations, with 41% anticipating 6-10% growth and another 25% expecting rapid growth exceeding 15%. This broad optimism across varied insurance sectors signals strong industry-wide confidence in sustained and significant growth.
Factors Driving Growth
Favorable growth in both commercial and personal lines is primarily attributed to anticipated rate increases. Despite initial predictions that the commercial property market might soften, recent storm activities in the latter half of 2024 could slow this trend, maintaining the upward pressure on rates. Personal lines insurers continue to face rising rates due to retained catastrophe frequency losses driven by secondary perils and persistent inflation. Social inflation and its pressure on reserves further encourage continued pricing momentum, which plays a pivotal role in the growth predictions outlined in the Aon survey.
There are mixed views on how insurers’ capital levels impact their growth expectations. While a majority of the respondents indicated they had sufficient or excess capital, about 22% noted they might need to slow their growth to manage capital efficiently. Approximately 36% of commercial insurers reported having excess capital to fund new opportunities, and about 41% indicated they had sufficient capital for existing initiatives. Critical to this discussion is the overall lack of pressure from rating agencies or regulators to bolster capital levels; nearly 80% of respondents reported no such external pressures. This nuanced perspective on capital levels helps to explain the varied growth expectations within the industry.
Challenges and Capital Management
For personal lines insurers, which experienced substantial challenges in 2022 and 2023, the landscape remains fraught with challenges, including regulatory environments that question rate adequacy. It is notable that the 20% of respondents who felt pressure from external stakeholders were mostly from personal lines companies. These companies also indicated higher retention rates relative to their forecasted earnings for the coming year. The regulatory scrutiny and operational challenges in personal lines highlight the complexities these insurers navigate in their pursuit of growth amidst stringent regulatory landscapes.
In terms of capital management, respondents revealed diverse strategies. The largest percentage (36%) indicated a reliance on retained earnings, equity, and traditional reinsurance forms. There was also an increased interest in structured reinsurance, which constituted the second-largest percentage (22%). Notably, structured quota shares might provide a viable growth pathway for insurers facing capital constraints. These varied strategies underscore the adaptability and innovative approaches insurers are considering to manage capital efficiently and leverage growth opportunities.
Mitigating Earnings Volatility
A recent capital poll by Aon, a global leader in insurance and reinsurance brokerage, reveals significant expectations and insights regarding the anticipated growth of US insurers by 2025. The survey indicates that an overwhelming majority of US insurers are optimistic about their future growth, with most predicting they will achieve a growth rate exceeding 5%. This promising outlook serves as a breath of fresh air for the insurance sector, signifying a positive trend across various market segments. The data collected illuminates the upbeat sentiment among insurers and identifies the drivers behind this expected growth surge. Key factors contributing to this optimism include advances in technology, enhancements in risk assessment, and an overall improved economic environment that supports insurance activities. As insurers navigate through evolving market conditions and capitalize on new opportunities, this optimistic forecast sets a hopeful tone for the industry’s future, highlighting the dynamic changes and growth potential that lies ahead. The insights provided by this poll underscore the industry’s confidence as it looks forward to a brighter future.
