Property-Casualty Profits Seen Improving While Surplus Growth Slows

While US property-casualty insurers are likely to experience improved profitability in 2022, surplus growth is likely to slow relative to the past 3 years, according to Fitch Ratings.

The rating agency noted that the property-casualty industry saw a slight deterioration in 2021 statutory underwriting results, modest growth in net earnings, and very strong surplus growth tied to investment gains. The US property-casualty industry continued to generate relatively steady operating performance in 2021, Fitch said, with statutory earnings growing by 4 percent.

The industry's policyholders' surplus increased by 40 percent over the past 3 years, Fitch said, driven by favorable equity market performance. That surplus now exceeds $1 trillion, according to the rating agency.

Fitch is projecting a 5 percent increase in US property-casualty insurers' net written premium growth in 2022, down from growth of nearly 9 percent in 2021, the highest level since 2003. The industry's statutory combined ratio is expected to decline to 97 percent this year from 99.7 percent in 2021, assuming insurers' catastrophe losses trend toward historical norms relative to the past 2 years, Fitch said.

Meanwhile, Fitch expects US property-casualty insurers' return on surplus to remain below 7 percent as lower investment earnings and a larger surplus base restrict improvement.

Fitch noted that US property-casualty insurers continue to face significant economic and investment market volatility, particularly due to higher US inflation. That volatility creates uncertainty in estimating loss costs in pricing and reserving, Fitch said.