US P&C insurer profits to stabilise and ‘modestly improve’ in 2023: Fitch

After a challenging year on many fronts, US property and casualty insurers could see their operating earnings stabilise in 2023 on the heels of “modestly improving” outlook amid rate increases,  Fitch Ratings has suggested, noting that natural catastrophe risks will remain a prime source of uncertainty that bears monitoring, which carriers will approach conservatively in 2023.

Sharp declines in personal auto results, large natural catastrophe losses from Hurricane Ian and declining investment market values from higher interest rates and volatile equity markets, led to declining P&C insurer performance this year.

Analysts believe that could change in the coming year. “Following weaker profits and a decline in surplus, US P/C insurer operating profits are anticipated to stabilise and modestly improve in 2023 due to premium rate increases in most commercial and personal lines and higher investment yields,” according to Fitch Ratings’ managing director James Auden.

Fitch Ratings’ 2023 outlook report for the sector indicates a ‘neutral’ outlook for US P&C insurers, but warns it could slip back to ‘deteriorating’ if underwriting performance is adversely affected by pricing that is not keeping pace with inflation, or if substantive reserve weakness emerges in longer tail lines.

P&C insurers have benefited from a conservative overall approach to loss reserving over the last 15 years, analysts said. However, the potential for pricing errors is heightened in an extended period of higher inflation.

“Large property losses from natural catastrophes in 2022, most notably Hurricane Ian, will further reduce risk appetite of reinsurers and primary writers, leading to further pricing and coverage placement challenges,” Auden said.

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