Given a substantial improvement in the economy, backed by rising interest rates, a growing gross domestic product (GDP) and lower tax incidence, the insurance industry has so far been exhibiting a significantly favorable performance. We expect this momentum to continue in the fourth quarter based on the aforementioned factors, which will enable insurers to focus on bolstering their bottom line as well as boosting top-line growth.
The insurers might grapple with challenges in the form of unpredictable weather-oriented events or regulatory uncertainty but banking on a more-than-decent performance year to date, we anticipate the industry to finish off with much better results in comparison to 2017.
Interest Rate Hike: Keeping Pace With Projection
Per expectations, the Fed raised the interest rate for the third time this year at the Sep 26 FOMC meeting with the current interest rate now ranging at 2-2.25% (also marking the eighth hike since the financial crisis). Also, the regulatory body is estimated to deliver another quarter-point rate hike in December 2018 and three more in 2019. This accelerated pace of rate hikes signifies the strength in economy that will be beneficial to the insurance industry for driving its key players’ results in the final quarter of 2018 and beyond.
This increase in interest rates has been a boon to insurers and we are hopeful that an improving rate environment will aid investment income, an important component of insurers’ revenues. This in turn, will allow insurers to accelerate their overall growth in the near term.
Underwriting Results: So Far So Good?
With no major catastrophic event experienced in the first half, the insurers could display a better-than-expected underwriting performance. Even though the third quarter will bear the brunt of Hurricane Florence, it will still not be as devastating as the damages suffered last year. Recently, United Insurance Holdings Corp. (UIHC – Free Report) announced that it has incurred $35 million pre-tax catastrophe loss due to the aforementioned hurricane.
