Fitch Ratings’ 2023 outlook report for US property and casualty (P&C) insurers says that operating earnings are set to stabilise following a number of external challenges in 2022.
The firm said that sharp declines in personal auto results, large natural catastrophe losses from Hurricane Ian, and declining investment market values from higher interest rates and volatile equity markets, led to declining P/C insurer performance this year. That said, a modestly improving picture in the coming months points to a ‘neutral’ sector outlook.
James Auden, managing director of Fitch, said: “Following weaker profits and a decline in surplus, US P/C insurer operating profits are anticipated to stabilise and modestly improve in 2023 due to premium rate increases in most commercial and personal lines and higher investment yields.”
However, Fitch said it could revise its P/C insurer sector outlook to ‘deteriorating’ if underwriting performance is adversely affected by pricing that is not keeping pace with inflation, or if substantive reserve weakness emerges in longer tail lines. P/C insurers have benefited from a conservative overall approach to loss reserving over the last fifteen years. That said, the potential for pricing errors is heightened in an extended period of higher inflation.
Natural catastrophe risks remain a prime source of uncertainty that bears monitoring, which P/C insurers will approach conservatively in 2023.
Auden said: “Large property losses from natural catastrophes in 2022, most notably Hurricane Ian, will further reduce risk appetite of reinsurers and primary writers, leading to further pricing and coverage placement challenges.”
