Mild weather and positive commercial-pricing trends bolstered insurers' 2013 results and, consequently, bonus payouts are largely up for the year. But the success of 2013 may set the bar considerably high for bonuses in 2014, Towers Watson says.
“As insurers wrap up their books for 2013, both management and boards can feel good about the performance they delivered and the resulting payouts,” Towers Watson says in a statement about its survey of 50 leading insurance companies about their 2013 bonus-pool funding and results.
For 2013, Towers Watson notes over 80% of participating insurers in its survey estimated their bonus pools would fund above target for 2013, with 70% of those companies estimating funding levels at 125% of target or higher.
“More than half of the companies surveyed reported improved bonus pool funding over 2012 levels, with half of those saying they would exceed the 2012 pool by 20% or more,” Towers Watson says.
The firm adds 2013 was “quite a good year for most insurance companies across most business lines — and, in turn, a good year for executive bonus pools in the industry.”
But replicating the year's performance in 2014 will be challenging, Towers Watson says, citing pricing trends, the weather and continuing economic and capital-markets uncertainty.
PC360 has reported on several analyses predicting a slowdown in commercial-lines pricing throughout 2014. Concerning the weather, Swiss Re and others have pointed out below-average U.S. losses headlined a relatively mild year in 2013 for catastrophes.
Towers Watson notes it is “unclear whether the strong performance and payouts of 2013 can be repeated to the same degree” this year and in 2015. This impacts potential bonus payments now in particular, the firm points out, as there is currently “intense intense scrutiny of executive compensation and the focus on strengthening linkages between pay and performance.”
Towers Watson suggests that conversations between boards and management will likely include questions such as:
- How challenging will it be to raise the bar for 2014 and 2015? If 2013 was a high-water mark, what level of incentive payouts will be acceptable for achievable levels of performance?
- Can insurance companies reasonably expect higher levels of performance without going outside their defined risk appetite?
- Do the bonus metrics and results align with performance against company strategy? Are annual and long-term incentive plan goals coordinated (and/or redundant)?
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