Since joining Swiss Re in 2006, industry veteran Monica Ningen (pictured above) has held a number of leadership roles and currently serves as CEO of property and casualty reinsurance for the US.
Ningen recently sat down to chat with Insurance Business about the state of the P&C space, how it’s evolving to cope with issues like climate change, and what lies ahead for 2024.
IB: How is the US property and casualty sector faring right now? What opportunities and challenges is it facing?
Ningen: We expect the P&C direct premium written to exceed a trillion dollars already this year, with personal auto accounting for a third of that total. That comes after a second consecutive year of double-digit growth. So when we look over the next decade, we expect the industry to grow slightly faster than the economy, driven by property and liability premiums – which have also grown faster than GDP, historically.
With that said, each line of business will face headwinds and tailwinds. The main driver of property and casualty premium is overall economic growth and the accumulation of assets. When we think about potential headwinds to the industry and industry growth, it’s really the weakening of labor markets and the impact on GDP. Tailwinds include a possible reacceleration of inflation, which helps nominal growth but could hurt profitability.
IB: Swiss Re has said the sector has good momentum coming into 2024. What’s causing that momentum?
Ningen: It comes from three things: improvement in personal lines, discipline in commercial lines, and higher interest rates that are contributing to higher profitability in 2024 for US P&C insurers. When we break that down, a rebound in the personal lines underwriting performance is the main driver of that momentum. The last two years were really difficult for the segment as rate changes in personal auto and homeowners [insurance] lagged the sharp increase in claims costs.
Over the past few quarters, what we’ve seen, however, is companies have been achieving a much-needed primary rate increase, and that impact has started to earn through their balance sheets and be visible in their improved results. That started to show up in the second half of 2023. So while premium growth has accelerated, claims inflation has also slowed for things such as cars, repairs, construction costs. So we really expect underwriting performance to improve pretty rapidly in 2024, absent any large catastrophic events for personal lines.
Commercial lines have been more profitable than personal lines over the past couple of years. The drivers of the relative outperformance were really an earlier start to rate increases and less claims exposure to the type of goods that had the highest inflation. Those things are fading, but the industry has been disciplined regarding capacity, pricing, terms and conditions. So as a result, we see commercial lines maintaining that strong profitability in 2024.
One risk of that is continued upward revisions to loss estimates, particularly for commercial auto and general liability exposure. And that really is a result of persistent economic and social inflation factors. But so far, if we look at the data through the end of 2023, those adverse developments have really been offset by reserve releases and other lines, especially workers’ compensation, which has performed quite well.
And lastly, if we look at higher interest rates, they provide a boost to operating profitability. On average, every 100 basis points of improvement in a portfolio yields a 250-basis-point improvement in return on equity. So we really forecast the market yields to remain above the maturing portfolio yields through 2024, which contributes an additional percent improvement to the industry ROA.
IB: The cost of property insurance is skyrocketing – particularly in disaster-prone states like Florida and California. What’s the answer? And how does the industry balance affordability for policyholders and profitability?
Ningen: This is an interesting topic and an important topic. So, first of all, we really expect insurability to remain largely intact – so insurance will be available yet at a price commensurate with the risk. This means insurance companies need to be able to charge the rate that is actuarially sound…
There needs to be an investment in climate adaptation alongside reduction and mitigation activities. This will help to ensure high-risk areas remain insurable at affordable prices. So together with the government, there should be efforts made to steer development away from high-risk areas in addition to investments in protective measures.
A couple stats that I like to use: If you think about the population in the landfall area of hurricane Ian, it’s increased by 620% since 1970, compared to a 65% population growth for the US overall. When you think about the US overall, the built-up areas within flood zones increased by over 30% between 2003 and 2023, compared to only 23% for the country overall. So we clearly see changes in where people are living. We see population changes in some of the most exposed areas.
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From a Swiss Re standpoint, we’re working with primary companies, alongside of them, to gain better visibility of exposures to provide more efficient claims handling, which will also contribute to making insurance more affordable. And we know that the long term insurability ultimately is the interest of all market players. Societal resilience really requires the engagement of everyone.
IB: What role – if any – should the government play in making sure that property stays insurable, and that insurance stays affordable?
Ningen: It takes both the public and the private sector working together to ensure that … we live in a resilient community, and we’re resilient to the threats posed by climate change and natural disasters.
There’s no one party or entity that can solve this on their own and in our opinion, when we talk about the government’s role, the government will have the greatest impact by concentrating on mitigation or resilience measures. Those are things like support for stronger building codes, coastal restoration for storm protection, resilient infrastructure, and things like grant programs are tax incentives for consumer mitigation.
Beyond that, the government should support provisions curtailing things like unchecked litigation practices, and providing transparency into litigation funding. So those are really important roles for the government to play. And, you know, the place the government has a really important role is for risks that are not random nor accidental, such as things like terrorism.
IB: Finally, what’s going on in the industry that really excites you – or that you think should be getting more attention?
Ningen: So I think there’s a couple things. One of them that I highlight is the importance of talent overall in the industry.
Talent is a topic that I think is really important for the industry to continue to be successful. We really have to think about how as an industry, we retain and attract the best talent. We do a great job at selling the value of our products, but perhaps we can do a better job of selling how rewarding the career in the industry is.
We know that Gen Z employees, which is the youngest of the workforce, put a high value on companies that make a difference. This aligns perfectly with the purpose of our industry to reduce financial uncertainty and help people manage accidental loss. The insurance industry provides security, and we can make such a big difference in a community after a large event. So this, in my opinion, is a great way for us to position as an industry and attract talent.
…When I think about Swiss Re, talent is actually one of the things that most excites me. The breadth of talent that we have at Swiss Re is pretty exciting. Our team demonstrates a genuine dedication to our clients. And last year we implemented adjustments to our operations that significantly enhance our ability to realize that potential. As a result, I think we’re even better equipped to provide exceptional service to our clients and broker partners, many of which we have long standing relationships with.
So the talent base that I’m so excited about, combined with our strong capital base, makes me really excited for the way that we’re uniquely positioned in the industry to be able to partner with our clients.
And second, I would be remiss if I didn’t mention technology. It’s the topic that’s all over so many discussions that we’re having, both within and outside of Swiss Re, and I think there’s some great opportunities out there – recognizing we have to be cognizant of the risks.
We’re really assessing topics like Gen AI from many different angles – productivity and use cases, where we can gain insights from large sets of unstructured data. We’ve seen historically that technology has impacted the industry through automation – that will continue for sure. But we see AI increasing the value beyond automation augmentation. It’s not a replacement for human judgment. It’s really an enabler for humans. And AI wil, in my opinion, increasingly be embedded in what we do. It’s pretty powerful, too, in terms of an ally to boost productivity, so employees can focus on more creative tasks.
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