Library: Swiss Re – US property & casualty outlook: higher premiums and interest rates could offer insurers respite this year
2022 was a difficult year for the US P&C industry: claims severities surged with inflation, natural catastrophe losses were elevated for a sixth straight year, and the lowest realised capital gains since 2009 offset higher fixed income yields. Higher used car prices alone caused auto insurers an estimated US$15 billion of extra claims costs; costlier repairs added to the bill. Elevated construction costs reduced profitability in property lines.
We forecast better results in 2023 and 2024 as inflation eases, and premium rates and portfolio yields increase.
The 20 percentage point (ppt) gap between commercial and personal lines loss ratios in the first nine months of 2022 is likely to decrease in 2023 as personal lines rate increases gain momentum and the drivers of motor inflation decelerate. This newsletter summarises statutory data as of 3Q22, and provides estimates and forecasts from full year 2022 to 2024.
We expect US P&C industry return on equity (ROE) to rebound on higher underwriting and investment income. We forecast ROE to reach 7.0% in 2023 and 8.0% in 2024, from an estimated 2.5% in 2022, as strong premium increases and reinvestment rates above portfolio yields boost insurers’ profitability.
In 3Q22, Hurricane Ian and high inflation combined to create a USD 14.2 billion underwriting loss1 and an industry net loss of USD 3.7 billion. 2 Investment results disappointed for a second consecutive quarter in 3Q22 as net realised capital losses again offset the benefit of higher interest rates.
However, downside risks remain, and a more severe-than-expected recession or inflation this year or in 2024 would pose risks for insurers’ exposure and premium growth, claims costs, investment yields and capital gains.
Easing inflation to lower the industry combined ratio (CR) to 100.0% in 2023 and 98.5% in 2024, from 103.5% estimated for 2022.
In 3Q22 the industry net combined ratio deteriorated to 106.5% despite international cessions offsetting part of the impact of Hurricane Ian on the US net loss ratio (LR). Reserve releases of USD 650 million also improved the 3Q accident period result by 0.4 ppt. We expect loss severities to ease as headline inflation decelerates to 3.7% in 2023. However, we forecast wages and healthcare cost increases to rise above general CPI inflation this year, which could weaken reserve adequacy and slow the profitability improvement. These primarily affect longer-tail liability exposures, which account for roughly half of industry premiums but nearly 90% of reserves
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