December CPI Data Suggests Insurance Companies Should Maintain Margins, Keefe, Bruyette & Woods Says

Analysts at Keefe, Bruyette & Woods note trends in the December CPI data point to insurance companies’ ability to maintain margins with lower, positive rate trends – particularly in the auto and homeowners markets.

Year-over-year, auto insurance rates increased 4.7 percent in December, compared with a 4.8 percent increase YoY in the November reading. When accounting for losses, KBW notes that auto rates increased 1.9 percent in December vs. 1.7 percent in November.

Homeowners’ insurance rose 5.6 percent vs 5.2 percent YoY in November, though accounting for losses, rates fell 0.1 percent. This is a sharp decline from November’s increase of 0.9 percent and was its lowest reading of 2014.

KBW sees risks that cheaper gas prices pressure auto margins, but the analysts see less of a risk that competition pressures margins. For Federated National Holding Co FNHC, Heritage Insurance Holdings HRTG and Horace Mann Educators Corporation HMN, this could be constructive to earnings.