U.S. property/casualty (P/C) industry underwriting results are likely to improve in 2023 as premium rates rise significantly in underperforming automobile and property segments, Fitch Ratings says. However, claims volatility amid higher inflation and macro uncertainty may impede a return to underwriting profitability. The neutral sector outlook on US P/C insurance is premised on stable to improving operating performance in 2023.
Declining underwriting performance in personal lines drove a 31% drop in statutory earnings in 2022 for the P/C industry. The personal lines sector should improve in 2023, as recent pricing and underwriting adjustments take hold amid normalizing insured catastrophe losses.
However, underwriting profits may not return in 2023, and Fitch forecasts a 100.4% industry combined ratio for the full year. Above-average catastrophe-related losses and sharp deterioration in auto segment results drove the industry combined ratio (CR) 3 percentage points higher in 2022 to 102.5%, significantly above the 99%–100% range for the previous four years. Commercial lines combined ratios in aggregate are anticipated to slightly deteriorate from current favorable underwriting profit levels.
Return on surplus dropped for the fourth consecutive year in 2022 to 4.3%, but is expected to rebound in 2023. Following a 39% increase from 2018-21, industry policyholders’ surplus (PHS) declined by 7% to $980 billion in 2022, largely from large unrealized investment losses, projected to fall below the 10-year average level of 7%.
Growth in direct written premiums will moderate slightly in 2023, but remain above historical norms as momentum in personal lines premiums accelerate. Direct written premiums expanded by over 9% for the second straight year in 2022, tied to commercial and personal lines rate increases.
Higher potential claims cost volatility may result in future adverse reserve development. Variability in natural catastrophe losses remain concerning, compounded by sharp increases in reinsurance costs and less reliable available capacity.