U.S. property/casualty insurers are likely to see improved underwriting results this year as premium rates increase significantly in underperforming segments such as auto and property, Fitch Ratings Inc. said in a report released Thursday.
Still, underwriting profits may not return in 2023 due to claims volatility amid higher inflation and macroeconomic uncertainty, Fitch said.
Fitch forecasts a 100.4% industry combined ratio for the full year. Net income and return on surplus will rebound but are projected to reach 6.5%, below the 10-year average of 7%.
Despite premium growth, the industry combined ratio worsened to 102.5% in 2022, driven by above-average catastrophe losses, including from Hurricane Ian, and a sharp deterioration in the auto segment.
This compared with a consistent range of 99% to 100% for the previous four years, the report said. Commercial lines combined ratios in aggregate are expected to deteriorate slightly in 2023
Net written premium increased to $773.9 billion in 2022, up 8% from $716.0 billion in 2021, but down slightly from 2021’s growth rate of 9%. Fitch projects an increase of around 7% in net written premium for this year.
“An ongoing hardening of premium rates and exposure increases in commercial lines, combined with an acceleration of pricing actions in personal lines, contributed to property/casualty insurance premium growth above historical norms in 2022,” Fitch said.
Industry net income decreased by 31% in 2022 to $43 billion, driven by declining underwriting performance in personal lines, Fitch said.
This contrasted sharply with net income in the $60 billion to $63 billion range in the four prior years.
“Variability in natural catastrophe losses is an ongoing issue, compounded by sharp increases in reinsurance costs and less reliable available capacity,” Fitch said.
Higher potential claims cost volatility may result in future adverse reserve development, Fitch said.
Its neutral sector outlook on U.S. property/casualty insurance is premised on stable to improving operating performance this year.