According to a recent analysis by Fitch Ratings, the US property and casualty industry is expected to experience better underwriting outcomes in 2023.
The report indicates that the upturn in underwriting performance will be propelled by elevated premium rates in the struggling automobile and property sectors. Nevertheless, the surge in inflation and uncertainty in the macroeconomic environment might lead to increased claims unpredictability, which could impede the restoration of underwriting profitability.
The report by Fitch Ratings drew attention to the significant decrease of 31% in statutory earnings that the industry underwent in 2022, mainly attributable to the deterioration of underwriting results in personal lines. Nonetheless, the report forecasts an improvement in 2023 as the recent alterations in pricing and underwriting gain momentum amidst a reduction in insured catastrophe losses.
Fitch Ratings’ prediction is that the industry combined ratio for 2023 will be 100.4%, indicating that there may not be a comeback in underwriting profits for the year.
The report pointed out that the industry combined ratio rose by three percentage points to 102.5% in 2022, exceeding the range of 99-100% for the preceding four years. This escalation was caused by above-average losses related to catastrophes and a considerable deterioration in the auto sector’s outcomes.
Furthermore, Fitch Ratings stated that the combined ratios for commercial lines, when taken together, are expected to worsen slightly from their current favorable underwriting profitability levels.
On the other hand, it is expected that the return on surplus will improve in 2023. The industry’s policyholders’ surplus had risen by 39% from 2018 to 2021, but it decreased by 7% to $980 billion in 2022 and is projected to drop below the 10-year average level of 7%.
In addition, the report projected a moderate improvement in the growth of direct written premiums in 2023, remaining higher than past trends due to the acceleration of personal lines premiums. It also mentioned that direct written premiums had increased by over 9% for two consecutive years in 2022, which was linked to the growth in commercial and personal lines rate increases.
Moreover, Fitch Ratings emphasized that there could be unfavorable reserve development in the future due to the possibility of higher claims cost volatility. The report pointed out that the variability in natural catastrophe losses “remains a concern,” along with sharp increases in reinsurance costs and a decrease in the availability of reliable capacity.