US Property-Casualty Underwriting Results Expected To Improve

The US property-casualty insurance industry's underwriting results will likely improve this year as premium rates increase significantly in the underperforming automobile and property segments, according to Fitch Ratings.

Still, claims volatility along with higher inflation and macro uncertainty could prevent the US property-casualty segment from returning to underwriting profitability, Fitch said. The rating agency said its neutral outlook for US property-casualty insurance is based on stable to improving operating performance by the segment in 2023.

Fitch said that declining personal lines underwriting performance drove a 31 percent drop in the US property-casualty industry's 2022 statutory earnings. The personal lines sector should improve in 2023, Fitch said, as recent pricing and underwriting adjustments take hold and insured catastrophe losses normalize.

Still, the industry might not see a return to underwriting profitability this year, Fitch said, with the rating agency projecting a 100.4 percent industry combined ratio for the full year. Above-average catastrophe-related losses and sharp deterioration in the auto segment's results propelled the industry's combined ratio to 102.5 percent in 2022, significantly higher than its 99 percent to 100 percent range over the prior 4 years.

Commercial lines aggregate combined ratios are expected to deteriorate slightly this year from their currently favorable underwriting profit levels, Fitch said.

The US property-casualty industry's return on surplus dropped for the fourth consecutive year in 2022 to 4.3 percent, according to Fitch, but is expected to rebound in 2023. Following a 39 percent increase from 2018 to 2021, the industry's policyholders' surplus declined 7 percent to $980 billion in 2022, largely as a result of unrealized investment losses, the rating agency said.

Fitch expects growth in the US property-casualty industry's direct written premiums to moderate slightly this year but remain above historical levels as personal lines premiums continue to increase. Direct written premiums increased for the second consecutive year in 2022, growing by more than 9 percent as a result of both commercial and personal lines rate increases.

Fitch noted that variability in natural catastrophe losses remains a concern for the US property-casualty industry, as do sharp increases in reinsurance costs and less reliable reinsurance capacity.