Diverging trends continue for Life and P&C insurance so far, with the former seeing earnings exceeding expectations while the latter experiences growth that underperformed expectations, according to Morgan Stanley.
In a recent update regarding the state of the Life and P&C industry, Morgan Stanley analysts stated that Personal lines maintain their performance, which is better than most, with better results in Q2’24 that continue to be bifurcated.
The quarter continued to see profitability and improving growth, a trend that Morgan Stanley expects to continue well into 2025, taking advantage of the cyclical environment.
“While reinsurers saw stable underwriting results, the growth generally underperformed expectations. As pricing softened on the margin, and the risk of an active hurricane season continue to serve as an uncertainty for 2024. That said, we continue to see value in reinsurers given the solid ROE trajectory, improved terms & conditions and risk management,” analysts explained.
Regarding broker results, these were more stable, with steady revenue growth. Morgan Stanley also noted that as companies continue to compete for talent, it will continue to monitor expenses.
According to the report, Commercial carriers held up better than expected given the uncertainty surrounding social inflation. That said, the long-term reserve impact potential is still under appreciated, Morgan Stanley believes.
The market conditions alongside favourable underwriting supported earnings for Life insurance, which finished above expectations at Q2’24, but analysts warn to beware of the rate environment.
The relatively solid underwriting experienced through international, group, and life insurance segments supported earnings.
Morgan Stanley stated: “While interest income was also supportive for the quarter, the forward commentaries regarding spread compression and a potentially lower rate environment are likely to serve as a headwind going forward.
“For this quarter’s earnings, headwinds included variable investment income, which remained below plan as expected, and asset management, where flows remain challenging despite equity market support for fee income.”
Analysts concluded: “Despite the solid results, we are incrementally negative on life insurers given the potential for compression on spread-based income products and market volatility that has arisen in recent weeks.”
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