Swiss Re Sees US Property-Casualty Insurers Returning to Profitability

The US property-casualty insurance industry should return to profitability this year and next after industry return on equity fell in 2022 due to the combination of high inflation and payouts from an active catastrophe year, according to Swiss Re.

In a report, US property & casualty outlook: sources of optimism from a difficult starting point, Swiss Re said that factors contributing to the improved outlook for the US property-casualty industry include the consideration of inflation in underwriting actions, the fact that inflation is easing, and the benefits to insurers from new investments producing higher yields.

Swiss Re expects the US property-casualty insurance industry's combined ratio to improve to 100 percent in 2023 and 98.5 percent in 2024.

In 2022, the industry's combined ratio was 102.4 percent, as inflation increased severity across most lines of business, according to the report. In addition, natural catastrophes added 6.9 percentage points to the 2022 combined ratio, above the 10-year average of 6.2 percent but less than the 5-year average of 7.3 percent.

Easing inflation should contribute to improved underwriting results for US property-casualty insurers this year, Swiss Re said, though high catastrophe activity through the first 3 months of 2023 suggests the path to underwriting profits might not be a smooth one.

The report said that while rate increases for property insurance have surged, insurers' gains on liability rates are slowing. Insurers' slowing rate gains on liability lines will be partially offset by rate growth in property and personal lines, Swiss Re said.

Swiss Re forecast premium growth of 7.5 percent this year and 5.5 percent next year, with the industry's return on equity improving to 8.0 percent this year and 9.5 percent in 2024.

The report noted that US property-casualty insurers do face a key downside risk in reserve adequacy if inflation causes losses to develop more than expected.