U.S. property/casualty insurers are responding to higher inflation and natural disaster losses with rate hikes when possible and exits when not, Swiss Re Ltd said in a report on Wednesday.
Freezing new business and non-renewals in some lines were among the steps insurers took as they exited disaster-prone markets such as California, Florida and Louisiana in the first half of this year, Swiss Re said.
Underwriting efforts have expanded to commercial real estate and personal auto lines even as the focus is on homeowners insurance, according to the Swiss Re Institute’s June US Property-Casualty Outlook.
Insurers cite the economic environment, natural disasters, inflation and reinsurance costs in some cases as factors that have led to an increase in expenses resulting in insurance losses, Swiss Re said.
Swiss Re continues to expect the sector to deliver an estimated return on equity of 8.0% in 2023 and 9.5% in 2024, up from 2.5% last year.
Higher premium rates and investment returns should lead to improved return on equity for U.S. property/casualty insurers this year and 2024, as claims decline, according to the report.
That said, the industry̵7;s first-quarter return on equity of 3.6% “highlights the downside risks” to its forecast, Swiss Re said.
Loss expenses rose 20% in the first quarter, offsetting strong premium growth and resulting in a net loss of $7.5 billion.
Persistent inflation and natural catastrophe losses led to a net combined ratio of 102.6% for the industry for the first quarter – the worst first-quarter underwriting performance in more than a decade, Swiss Re said.
In contrast, interest increased earnings as investment returns contributed 33% more to net income than a year ago.
Commercial real estate interest rate increases are accelerating, while liability interest rate gains are generally steady or slowing, Swiss Re said.
Overall, rate hikes will continue this year as inflation, natural disasters and geopolitical uncertainties put upward pressure on claims and operating costs, Swiss Re said.
Swiss Re maintains its premium growth estimates of 7.5% this year and 5.5% in 2024.