The US Property and Casualty (P&C) insurance industry is poised for a robust year in 2024, as indicated by a recent report from the Swiss Re Institute.
The industry enters the new year with strong momentum, following a period where profitability lagged behind insurers’ cost of capital.
However, 2023 saw a turnaround, with strong premium increases, easing claims cost inflation, and higher investment returns contributing to a boost in industry results by the second half.
The report predicts a significant improvement in industry Return on Equity (ROE), estimating it at 9.5% for 2024 and further rising to 10.0% in 2025.
This marks a substantial increase from the estimated 5.0% in 2023. Personal lines are expected to drive this growth, benefitting from faster premium increases and easing economic inflation.
The combined ratio is anticipated to improve, led by personal auto. The industry net combined ratio is forecasted at 98.5% for both 2024 and 2025, a notable improvement from the estimated 103% in 2023.
Despite challenges in 2023, the third quarter saw a positive differential between net premiums earned and claims incurred, a trend expected to continue into 2024.
Personal lines, particularly personal auto, are predicted to be the primary drivers of growth in 2024. The forecast for total direct premiums written (DPW) growth is revised upward to 7.0% for 2024, with momentum in personal auto contributing significantly. Commercial lines growth is expected to be led by property, while liability growth faces challenges.
Commercial property and liability are at different points in the pricing cycle. Commercial property growth rates are expected to be in the high single digits in 2024, whereas liability rate growth is projected in the low single digits. Deceleration in rate increases is noted, particularly in liability lines such as D&O and cyber.
Disinflation is anticipated to lead to a deceleration in claims costs, varying by line of business. Property and personal auto, with strong premium growth, are expected to benefit the most from disinflation. However, liability lines may receive lesser benefits due to the nature of claims and social inflation.
The report forecasts an increase in investment yields to 3.7% in 2024 and 4.1% in 2025, up from 3.5% in 2023. Recurring income is expected to drive this increase, with higher yields across all maturities. The decline in long-term interest rates is not expected to significantly impact reinvestment yields.
