In the third quarter of 2023, the domestic Property and Casualty (P&C) insurance industry demonstrated robust growth, with direct written premiums expanding by 9.8%, according to a KBW report.
This growth surpassed the pace of the previous quarter (9.2%) and the first quarter (8.4%), reflecting persistent rate increases in personal and commercial lines.
The positive trajectory was observed across most lines, with a notable moderation in professional liability rate decreases, the report noted.
The industry’s significant year-over-year direct loss ratio improvement in major personal lines showcased a growing gap between earned rate increases and moderating loss trends.
This improvement was accentuated by abnormal loss activity in the prior year due to Hurricane Ian. Similarly, standard and specialty commercial lines experienced varying degrees of year-over-year direct loss ratio improvement, driven by compounding rate and exposure unit increases.
This trend is expected to continue into 2024, suggesting potential future margin expansion as current-period rates start to earn in.
Among the noteworthy performers were personal auto insurers, displaying year-over-year improvement in core loss ratios. The effects of double-digit rate increases and non-rate underwriting actions are manifesting into positive earnings.
Reinsurers also garnered optimism, with expectations of strong returns in 2024, fueled by robust property catastrophe reinsurance and improving casualty reinsurance conditions.
The growth in direct written premiums across major lines was attributed to sustained commercial rate increases, robust personal lines rate hikes, and ongoing exposure unit growth.
In the third quarter of 2023, 12 out of the 14 individually reviewed lines experienced year-over-year growth in direct written premiums, and while a moderation is expected, the trend is anticipated to persist in 2024.
In terms of reserve development, the industry released $0.3 billion of prior-year reserves in Q3’23, surpassing the $0.2 billion release in Q3’22.
Modest net favourable reserve development is expected to persist, driven by the conservatism accompanying significant rate increases in recent accident years.
The combination of earned rate increases, even with a deceleration expected in most lines, and moderating exposure unit growth is projected to outpace loss cost trends in 2024.
