Analysts at Fitch Ratings believe that the property and casualty (P&C) re/insurance industry is positioned for better underwriting profits in 2022, driven by continued favourable commercial lines pricing trends and likely stabilization in personal auto business.
The 2021 GAAP full-year results for a peer group of 45 North American P&C firms compiled by Fitch showed premium growth and generally strong underwriting results, as claims losses and other pandemic-related effects fell substantially relative to 2020.
Underwriting performance improvement in the commercial segments in 2021 was driven by favourable loss ratios in liability lines and lower expense ratios on an expanded premium base, Fitch says.
Specialty underwriters posted the best combined ratio of all subsegments, driven by outsized improvement in rate increases and higher demand, particularly in specialty and excess and surplus.
The personal lines group was the only segment that experienced a decline in performance following historically strong results in 2020 amid sharply rising personal auto claims and outsized homeowners’ catastrophe losses.
Meanwhile, the Florida homeowners’ group, with an operating ROE of negative 10.1%, was the only segment to report an operating loss in 2021.
Fitch data shows that net investment income for the group increased by 14% in 2021, reflecting significant improvement in alternative investment valuations, while new money fixed-income yields remained historically low.
“Underwriting profit improvement has become increasingly important amid persistently low interest rates to achieve target returns on capital,” analysts explained.
“However, near-term underwriting profitability growth may be impeded by a normalization of prior claims frequency in many segments, loss-cost uncertainty tied to a higher inflation environment and adverse severity trends in numerous segments tied to supply chain shortages and litigation settlement costs,” it concluded.