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Stock Strategist Industry Reports

The Insurance Pricing Cycle Might Be Turning

Unfortunately, market valuations reflect this, and we see little opportunity.

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We've heard increasing chatter among investors and in the media that the insurance pricing cycle is about to break upwards. We don't disagree that catalysts are in place to push pricing higher, although we think a quick and dramatic upturn is far from assured.

In our opinion, the primary determinant of industry pricing is the capital level of the insurance carriers, although other factors do play a role. Insurance pricing, like any other market price, is set by supply and demand. As demand for insurance is relatively static, the prime determinant of pricing is the amount of industry capital available to underwrite insurance (supply). Historically, a decrease in industry capital has typically been followed by a substantial spike in pricing within two years, as can be seen in the table below.

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Brett Horn does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.