A.M. Best Special Report: Latest A.M. Best Survey Results Note Lower Return Expectations Due to Persisting Low Interest Rates, Regulatory Cost Concerns

OLDWICK, N.J.--()--Approximately three-fourths of insurers surveyed have lowered their target return-on-equity expectations to 10% or lower, a reflection of highly competitive market conditions remaining and the slow-growth economy, according to a new A.M. Best special report.

The Best Special Report, titled, “A.M. Best Spring 2016 Insurance Industry Survey,” assesses insurers’ opinions on a number of key themes, including market conditions, compliance costs, the Department of Labor’s fiduciary rule, cyber risk, reinsurance trends and exposure to Puerto Rico’s municipal bonds.

The prolonged low interest rates remain a prevalent issue, as 37.6% of insurers cited them as the biggest industry threat, followed by increased regulations (26.2%), competition (19.3%) and antiquated business models (12.4%). Just 2% of respondents felt that the outcome of the presidential race would be a main threat to the industry.

In terms of competitive pressures, the health and life/annuity segments responded that they feel the most pressure from regulatory drivers, while the majority of property/casualty insurers reported facing pressure from product development, new entrants and external forces such as Amazon and Google.

On cyber risk, just over 30% of survey participants indicated that they had been a target of data breach or cyber-attack. Within the last five years, half of the insurers in the survey have invested more than $1 million in upgrading systems, both hardware and software. However, nearly as many insurers (42.9), spend less than $100,000 to prevent such attacks. Just 10.4% reported making investments of more than $1 million to prevent cyber-attacks and data breaches.

Fundamental shifts in the reinsurance industry remain apparent in the survey findings. Over the past 24 months, 43.9% of respondents have restructured their reinsurance program. Of these companies, 71.4% said they were able to get better protection for either less or the same cost. In addition, 52.7% of survey respondents said they had added and/or removed reinsurers from their panel in that 24-month timeframe.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=251543.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Lauren Favara, +1 908-439-2200, ext. 5507
Research Content Specialist
Credit Rating Criteria – Research and Analysis
lauren.favara@ambest.com
or
Michelle Baurkot, ARe, ARM, +1 908-439-2200, ext. 5314
Assistant Vice President - Industry Research
Credit Rating Criteria – Research and Analysis
michelle.baurkot@ambest.com
or
Christopher Sharkey, +1 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Lauren Favara, +1 908-439-2200, ext. 5507
Research Content Specialist
Credit Rating Criteria – Research and Analysis
lauren.favara@ambest.com
or
Michelle Baurkot, ARe, ARM, +1 908-439-2200, ext. 5314
Assistant Vice President - Industry Research
Credit Rating Criteria – Research and Analysis
michelle.baurkot@ambest.com
or
Christopher Sharkey, +1 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com