New analysis from Fitch Ratings has predicted improved underwriting results for the US property & casualty industry in 2023.
According to the report, this improvement will be driven by premium rate increases in the underperforming segments of automobile and property. However, higher inflation and macroeconomic uncertainty could also impact claims volatility, potentially hindering a return to underwriting profitability.
Fitch highlighted the 31% drop in statutory earnings experienced by the industry in 2022, which was largely driven by declining underwriting performance in personal lines.
This is expected to improve in 2023, as recent pricing and underwriting adjustments take hold amid normalizing insured catastrophe losses, according to the report.
Fitch’s forecast settled on a 100.4% industry combined ratio for 2023, suggesting that underwriting profits may not return during the year.
The report made note of above-average catastrophe-related losses and sharp deterioration in auto segment results that pushed the industry combined ratio three percentage points higher in 2022 to 102.5%, significantly above the 99-100% range for the four years prior.
Commercial lines combined ratios in aggregate are also anticipated to slightly deteriorate from current favorable underwriting profit levels, Fitch noted further.
Meanwhile, return on surplus is expected to rebound in 2023. After a 39% increase from 2018 to 2021, industry policyholders’ surplus fell by 7% to $980 billion in 2022 and is projected to fall below the 10-year average level of 7%.
The report additionally predicted growth in direct written premiums to improve slightly in 2023, remaining above historical norms as momentum in personal lines premiums accelerate. It also made note of how direct written premiums expanded by over 9% for the second straight year in 2022, tied to commercial and personal lines rate increases.
Furthermore, Fitch highlighted that higher potential claims cost volatility may lead to adverse reserve development in the future. The report said variability in natural catastrophe losses “remains concerning,” in addition to sharp hikes in reinsurance costs and less reliable available capacity.
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