Analysts at Keefe, Bruyette & Woods (KBW), have announced that the domestic P&C insurance industry’s 4Q21 year-over-year direct written premium (DWP) growth decelerated modestly to +8.5%, from 3Q21’s +10.4%, although the strong y/y increase probably still reflects recovering exposure units and sustained economically sensitive rate increases.
In a report, analysts say that premium volume growth stemmed largely from lines that are economically sensitive and/or experiencing material rate increases like ocean, inland marine, other products liability, warranty and commercial auto.
The industry’s overall direct loss ratio deteriorated in y/y 4Q21, as significant auto loss ratio increases again outpaced improvement within homeowners and most commercial lines.
“We remain cautious on personal insurers, but very optimistic about specialty and commercial re/insurers, whose persistent and compounding rate increases, combined with rising exposure units, should drive strong core underwriting margin expansion, along with sustained strong top-line growth,” KBW analysts said.
Continuing, analysts said that they attribute the strong DWP rates to still robust commercial rate increases and recovering exposure units.
In 4Q21, 12 of 13 individually reviewed lines grew DWP y/y, in line with 3Q21, an easier y/y comparable is expected to persist through 1H22 for most lines.
KBW analysts also said that they mostly attribute 4Q21’s direct loss ratio deterioration to normalising claim frequency, as well as persistently higher severity costs with personal auto.
Other lines’ earned rate increases are said to be lowering loss ratios, notwithstanding still uncertain post-pandemic loss trends and cyclical conservative reserving.
KBW analysts also noted that they believe that elevated catastrophe losses, caution over post-pandemic social inflation, low interest rates, and other emerging risks, such as cyber and growing unusual losses, point to sustained rate increases well into 2022.
“We similarly expect personal auto rate increases to accelerate through 1H22, followed (on a lag) by core underwriting margin improvement likely in 2H22.”