US P&C may grow premiums, but can’t hold the lien on profit: Swiss Re

The US property and casualty insurance businesses on track for higher than previously expected premium, but lower profits, including a fractional 2.5% return on equity in 2022 after the blow from Hurricane Ian, analysts at the  Swiss Re Institute have claimed.

Hurricane Ian will likely go down as “the second-costliest hurricane ever for the US P&C industry” roughly equal to annual cat budgets while runaway inflation “continues to pressure results,” especially in personal lines.

Premium growth looks strong in nominal terms, where Swiss Re Institute has raised their forecast for nominal direct premiums written (DPW) growth to 9.8% in 2022 and 7.0% in 2023.

Commercial growth of 13.6% and personal line growth of 6.3% through H1 2022 should continue to converge “with commercial lines increases decelerating slightly from high levels in 2Q22, and personal auto and homeowners accelerating in an attempt to catch up with inflation.”

“We expect strong nominal growth through the end of the year as commercial lines rate gains look persistent, personal lines rates are accelerating and exposures, notably in workers' comp, are growing rapidly,” analysts wrote.

But inflation-driven problems with claims severity plus the boost to cat losses have “eroded the profitability benefit of rising rates.”

Swiss Re Institute thus cut its 2022 return on equity (ROE) estimate to 2.5% from 5.5% thanks to Ian and claims inflation, but is willing to stand by its 2023 forecast for a still modest 6.0% “as premium and interest rate increases will aid results.”

Restated as combined ratios, Swiss Re has raised its 2022 US P&C combined ratio estimate to 103.5% from 100.5%, and sees improvement to 102.0% in 2023. Personal auto is on track for a 2022 reading above 106%.

The industry combined ratio had already deteriorated to 103.7% in Q2, in part as the favourable prior period developments have slowed as inflation makes it mark on older claims and courts pick up the pace on tort cases, analysts note.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.