The US Property & Casualty (P&C) insurance industry is anticipated to transition from a challenging 2022 to a more favourable 2024, with improved profitability driven by higher premiums and increasing interest rates, as indicated by the Swiss Re Institute’s report.
However, the industry has yet to reach the tipping point where premium growth outpaces claims costs.
The first half of 2023 saw the industry grappling with significant underwriting losses, totaling USD 22 billion, largely attributed to a costly second quarter for natural disasters, ongoing inflation, and a slowdown in favourable reserve development.
These factors resulted in a meager net income of just USD 2 billion, despite higher investment earnings.
While premium growth remains strong, the focus has shifted towards personal lines, with robust rate increases. However, commercial property lines are experiencing weak or negative growth, offsetting the gains in other areas. The report raises the premium growth estimate for 2023 to 9.0% from the previous 7.5%.
The industry’s return on equity (ROE) estimate for 2023 has been revised down to 6.5% from the earlier projection of 8.0%. Elevated catastrophe activity and rising claims costs have weighed on underwriting results.
Notably, severe convective storm claims in the first half of 2023 led to an estimated USD 16 billion in extra claims costs. However, it is expected that the industry will see improved underwriting results in the second half of 2023 as the inflationary impact on loss costs subsides, and interest rate gains accrue.
The combined ratio forecast for 2023 has been revised up to 102.0%, with natural catastrophes contributing significantly to underwriting losses.
Inflation continues to drive up claims severities in property lines, particularly impacting homeowners. Loss costs for homeowners and commercial property claims increased substantially year-on-year in the first half of 2023.
Personal lines, including personal auto and homeowners’ premiums, have experienced double-digit growth in the first half of 2023. In contrast, commercial lines’ growth rates have weakened overall, reflecting rate trends.
The report estimates total direct premiums written to grow by 9.0% in 2023, primarily driven by rate gains in personal lines and commercial property.
Investment Income: The report forecasts an average investment yield of 3.5% in 2023 and 3.7% in 2024. Despite challenges, reinvestment yields remain above rates on maturing securities.
The US P&C insurance industry is navigating a complex landscape in 2023, balancing the need for higher premiums to offset claims costs while addressing challenges posed by natural disasters and inflation. Industry experts anticipate a stronger 2024 as inflation subsides and interest rates rise.