Despite substantial premium growth for North American P&C insurers overall in 2022, the struggle continued for personal auto business and Florida homeowners insurers, suggest analysts at Fitch Ratings.
According to the rating agency’s review of the results for 40 North American re/insurers, the aggregate group combined ratio increased by 1.4 percentage points to 96.8% compared with 95.4% in 2021, while GAAP operating return on equity improved to 8.5% in 2022.
However, one notable outlier in this overall improvement was the personal auto business. Fitch’s Director, Christopher Grimes, explains that even though this line of business is historically one of the largest and more stable, 2022 results proved volatile.
“Personal lines performance deteriorated sharply in 2022, led by rising inflation, accelerating loss-cost trends in personal auto, and above average insured catastrophe losses,” said Grimes.
Meanwhile, as specialty commercial and re/insurers produced the strongest improvement in operating results in 2022, Florida specialists again staggered.
Fitch states that Florida homeowners insurers saw considerable operating losses as the impact of Hurricane Ian exacerbated an already-challenged environment.
Grimes added, “Property specialists in this market will face challenges tied to reduced availability and higher costs for reinsurance coverage in the near term. Further market exits remain a distinct possibility in 2023.
“Recent legislative and regulatory actions enacted in Florida will support a reduction in future property insurance loss costs.”
The overall group entered the year with an aggregate unrealised bond gain position of $38 billion, before experiencing a $117 billion decline in unrealised bond values to a $79 billion unrealised loss at YE 2022.
Fitch currently holds a neutral fundamental sector outlook for the U.S. P/C insurance sector in 2023, noting that sharp pricing changes in personal lines point to better sector underwriting results in 2023 from uncharacteristic recent volatility.
However, according to Grimes, Fitch may move the sector outlook to ‘deteriorating’ if underwriting performance is adversely affected by pricing that does not keep pace with inflation, or reserve adequacy is materially compromised.
