According to Fitch Ratings, US property & casualty (P&C) insurers are in a position to generate statutory underwriting profits and steady earnings next year, despite challenges from higher inflation and a likely reduction in contributions from investment gains.
Fitch holds a neutral fundamental sector outlook for the US P&C sector for next year, as its outlook considers the influence of underlying fundamentals foreseen for 2022 on financial performance relative to results in 2021.
The aforementioned headwinds and waning commercial lines pricing momentum could present issues for the sector beyond 2022.
Evolving catastrophe risk exposures will add volatility to P&C insurers as well. Global insured losses from natural catastrophes mounted in 2021 with unusual first quarter winter storm losses, up to $40 billion in estimated losses from Hurricane Ida, and potential for up to $10 billion in losses from an active California wildfire season. As a result, re/insurers are increasingly reducing capacity in catastrophe-prone regions, leading to further price increases.
Managing Director Jim Auden said: “Underwriting profitability for the US P&C insurance industry is likely to improve in 2022 to a 97% combined ratio due to continued favourable commercial lines pricing.
“Anticipated 2021 improvement was tempered somewhat by above-average natural catastrophe losses and deterioration in personal auto segment results.”
“Rising inflation and supply chain constraints affected 2021 claims in property and automobile segments, with higher costs for building materials, auto parts and skilled labour.
“If higher inflation patterns persist, affecting claims cost factors such as medical and litigation costs, profitability and reserve strength would be expected to weaken in longer-tail segments, including workers’ compensation and other liabilities.”
