Financial Services: A Favorable Outlook for Insurance
Diversified insurance and property-casualty are particularly attractive in a sector that looks slightly undervalued overall.
While recent price increases have improved profitability in P&C insurance, we don't see a strong reason to assume that pricing will continue to improve. In our view, recent pricing increases have largely been driven by lower interest rates. As lower rates pushed down investment income, higher pricing and underwriting income have been necessary to maintain ROEs. Yields on new issues are still generally lower than yields on maturing securities, and investment income remains pressured. We believe interest rates will continue to have a positive impact on pricing in the very near term, but the effect should fade over time, barring a further decline in rates.
Erin Davis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.