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U.S. insurers are generating solid returns after nearly five years of compounding rate increases — yet investor sentiment is “really, really negative… near the lower tail” of historical price-to-earnings multiples, says KBW’s Meyer Shields.
Despite the market skepticism, profitability is strong across multiple lines.
“Property catastrophe reinsurance in particular [is] generating tremendous profits right now,” he noted, thanks to a mostly silent 2025 hurricane season.
Workers’ compensation is also performing “fantastic… mostly from revised loss estimates for prior years.” Personal auto has swung from COVID over-earnings to inflation pain and now back to strength as carriers push through higher rates.
AI as a Real Profit Engine — Eventually
Shields believes AI will ultimately show up in earnings. “We’re moving past the, ‘oh, one day this will be great,’ and getting to the point where people say, okay, we’re using this now.” The outcome, if it works, will be “more accurate and more efficient, faster” underwriting and claims — though the timing remains uncertain.
Property Cat Discipline Is Structural, Not Cyclical
Shields traces the turning point to January 1, 2023, when reinsurers sharply raised attachment points — “probably in the neighborhood of forty to fifty percent.” Reinsurers have intentionally exited “day-to-day smaller losses,” pushing secondary perils like hail and tornadoes back to primary insurers — and those insurers are in turn passing risk to policyholders via higher deductibles and actual-cash-value reimbursements.
A Market Rewarding Sophistication and Scale
Shields expects larger carriers to gain share: “The big insurance companies are getting bigger… leveraging their size, their skill, the sophistication of their analytical capabilities.” Smaller regionals may struggle to compete — but he rejects the idea that risk is aggregating dangerously: “If instead of 3,000 companies we go to 2,000… and they’re all really smart, I think that risk can be appropriately managed.”
What He’s Watching Next
The key signal heading into earnings is clear: “Underwriting results… because for the most part that actually tells us where pricing is gonna go.” If reserve strengthening re-emerges — particularly in casualty — rate momentum returns. If not, competitive pressure follows.
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