U.S. Property/Casualty Insurers Navigate Inflation and Catastrophe Losses
The property/casualty insurance industry in the United States is experiencing the impact of rising inflation and increased losses due to natural catastrophes. In response, insurers are implementing various strategies such as rate increases and market exits. These measures aim to address underwriting losses and mitigate risks associated with catastrophe-prone regions like California, Florida, and Louisiana. A recent report by Swiss Re Ltd. sheds light on the industry’s actions and outlook for the coming years.
Rate Increases and Market Exits
According to Swiss Re Institute’s June U.S. Property-Casualty Outlook, insurers are taking underwriting actions not only in homeowners insurance but also in commercial property and personal auto lines. Insurers are responding to the economic environment, natural disasters, inflation, and reinsurance costs, which have led to increased expenses and underwriting losses. As a result, rate increases and market exits are being observed as insurers strive to maintain profitability.
Return on Equity Outlook
Despite the challenges faced by the industry, Swiss Re expects U.S. property/casualty insurers to deliver improved returns on equity. The forecast projects an estimated return on equity of 8.0% in 2023 and 9.5% in 2024, a significant increase from 2.5% recorded last year. Higher premium rates and investment yields are anticipated to drive this improvement as claims severity eases. However, the industry’s first-quarter return on equity of 3.6% highlights the potential downside risks to this forecast.
Losses and Underwriting Performance
The first quarter of this year saw a significant increase in loss costs, surpassing strong premium growth and resulting in a net underwriting loss of $7.5 billion. Swiss Re reports that persistent inflation and natural catastrophe losses contributed to a net combined ratio of 102.6%, marking the worst first-quarter underwriting result in over a decade. On the positive side, investment yields, boosted by interest rates, contributed substantially more to net income compared to the previous year.
Rate Trends and Future Outlook
Swiss Re notes that rate increases in commercial property lines are accelerating, while rate gains in liability lines are generally steady or slowing. The report predicts that rate increases will continue throughout the year due to inflation, natural catastrophes, and geopolitical uncertainties, which exert upward pressure on claims and operating costs. Swiss Re maintains its premium growth estimates of 7.5% for this year and 5.5% for 2024.
As U.S. property/casualty insurers navigate the challenges posed by inflation and natural catastrophe losses, they are implementing strategies such as rate increases and market exits to address underwriting losses and maintain profitability. The industry’s outlook for improved returns on equity in the coming years is driven by higher premium rates and investment yields. However, the first-quarter performance highlights the risks associated with these projections. As the industry continues to adapt to evolving market conditions, insurers will monitor rate trends and focus on managing risks to ensure sustainable growth in the future.
