Underwriting profitability is expected for North American P&C insurers this year according to S&P analysts, who have also forecasted rate increases for homeowner insurance, auto and property, among others.
Additionally, according to their recent report, they believe that P/C insurers in the region will reduce their use of reinsurance mainly due to price increases.
“For Canadian P/C insurers, we expect that normalising mobility will undermine personal auto and consolidated underwriting results,” said analysts. “However, we still expect underwriting profitability thanks to continued price hardening and normalised natural catastrophe losses.”
“In the US, underwriting income will remain dampened in the near term, with a minor recovery likely versus 2022, as continued pricing actions help improve underlying profitability for personal lines (mainly auto), while underlying results for commercial lines remain adequate,” they added.
However, S&P noted, for both countries, analysts expect that overall profitability will benefit from rising yields, improving investment income in 2023.
For homeowner insurance, analysts expect mid- to upper-single-digit rate increases, with personal auto rates continuing to rise at varied levels depending on past severity.
For commercial lines – except property – rate increases will be slower than in the past two years, according to the report, but a 5%-7% is expected for standard commercial lines to cover loss costs.
Property rates will continue to accelerate due to reinsurance cost pressures. Workers’ compensation rates will remain flat to moderately negative due to a favourable long-term decline in claims frequency.
Finally, analysts also believe that P/C insurers will reduce their use of reinsurance by raising their attachment points due to price increases at lower reinsurance levels. This may further expose their earnings to natural catastrophe losses.
S&P Global Ratings credit analyst Simon Ashworth, said: “Macroeconomic factors, particularly capital market volatility, inflation, and interest rates/credit spreads are key risks over the next 12 months.
“Projected capital levels and relative operating performance will be two key determinants of insurance credit risk over the coming year.”
