The US property and casualty (P&C) insurance industry is on pace for increased profits in 2024, supported by improved underwriting and investment results in the first half of the year, according to insights from Swiss Re.
The industry’s combined ratio for year-to-date 2024 stands at 98%, marking a seven-percentage-point (ppt) improvement from the same period in 2023. This improvement is largely driven by an 11 ppt reduction in the personal lines loss ratio, despite the pressure of severe convective storm activity on the homeowners' insurance sector.
Premium growth remained strong at around 10% for the first half of 2024, mainly driven by personal lines, as competition builds among carriers reaching rate adequacy. Investment income has provided a tailwind due to reinvestment yields outpacing portfolio yields.
Industry return on equity (ROE) for the first half of 2024 hovered near 10%, and Swiss Re maintains its full-year forecasts for ROE at 9.5% in 2024 and 10.0% in 2025.
Swiss Re attributes the favorable performance to strong premium growth, easing inflation, and higher investment returns. Through the first half of 2024, net premiums earned rose by 12% compared to the previous year, while net claims incurred increased by only 5%. Recurring investment yields were more than 20% higher than in 2023.
However, some lines of business, such as commercial auto liability, continue to underperform, with only one year of underwriting profit in over a decade. While personal auto has seen improvement, competition is expected to increase and could erode the recent gains. Swiss Re also noted that downside risks remain, including factors like social inflation and reserve adequacy.
Swiss Re has revised its 2024 forecast for P&C direct premiums written (DPW) growth to 9.5%, up from its previous estimate of 8.0%, after 10% year-over-year growth in the first half of the year. Personal lines, which saw DPW increase by 15%, were the primary drivers of this growth.
However, the premium growth forecast for 2025 has been revised downward to 4.0% from 5.0%, due to rising competitive pressures that are expected to lower rate increases. Swiss Re pointed out that personal auto rate increases, while still elevated, have passed their peak, and over 20% of personal auto insurance rate filings in the third quarter of 2024 indicated negative average rate changes.
Auto insurance rates were up nearly 11% over the past 12 months, based on approved rate filings. As more insurers achieve rate adequacy, advertising spend has increased, and consumers are reacting to higher rates by shopping for new policies. Data from LexisNexis Risk Solutions showed that auto insurance shopping rates were up 16% year-over-year in the second quarter of 2024.
Commercial lines premiums are growing at mid-single digits, with significant variation across different business lines. While personal lines have seen mid-teens growth, the commercial sector has been more tempered.
Swiss Re noted that fire and allied premium growth remained steady at around 5% year-to-date, while premiums for other liability claims-made policies, including errors and omissions (E&O) and directors and officers (D&O) liability, have continued to shrink for the eighth consecutive quarter.
Social inflation and elevated claims in commercial auto liability and other occurrence-based liability lines, however, have driven double-digit premium growth. Exposure growth, supported by a forecast of US real GDP growth at 2.7% in 2024 and 1.9% in 2025, has also contributed to premium increases.
Swiss Re expects the US P&C sector’s combined ratio to improve to 98.5% for both 2024 and 2025, down from 102% in 2023, as premium growth continues to outpace loss costs. Lower economic inflation has eased claims pressures, and personal lines have benefited from regulatory approvals of rate increases following significant underwriting losses.
Homeowners' premiums, for instance, have caught up with rising replacement costs of houses, though further improvement is needed to achieve adequate profitability amid continued elevated catastrophe losses. Swiss Re forecasts decelerating claims costs in personal lines, driven by an estimated 0.2% increase in construction prices for 2024, followed by a 2.5% rise in 2025.
Natural catastrophes, particularly severe convective storms, continue to weigh on claims costs, contributing over 7 ppts to the first half 2024 net loss ratio. While down from 10 ppts in the first half of 2023, this was still higher than any year since 2011. Swiss Re reports that, as of August 2024, there had been 19 severe storm events with more than $1 billion in economic losses.
Homeowners' insurance has borne the brunt of catastrophe losses, accounting for approximately two-thirds of the industry’s severe weather-related losses in the second quarter. The biggest unknown for 2024 profitability remains hurricane risk, with the peak of the Atlantic hurricane season still ongoing.
Swiss Re also expects investment income to continue providing support, with yields forecasted to rise to 3.7% in 2024 and 4.0% in 2025. Through the first half of 2024, net investment income earned was up nearly 30% from the previous year, driven by higher interest rates across maturities.
Reinvestment yields are expected to remain above the average yields on maturing securities, though interest rates have declined nearly 80 basis points since the second quarter. Swiss Re projects that the Federal Reserve will reduce policy rates by 150 basis points by the end of 2025, with the 10-year Treasury yield forecasted to end 2024 at 4.0%.
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