U.S. property and casualty insurers are likely to see improved underwriting results this year as premium prices increase significantly in underperforming segments such as auto and property, Fitch Ratings Inc. said in a report released Thursday.
Still, insurance profits may not return in 2023 due to volatility in claims due to higher inflation and macroeconomic uncertainty, Fitch said.
Fitch forecasts a total expense ratio of 100.4% for the full year. Net profit and return on surplus will recover but are expected to reach 6.5%, below the ten-year average of 7%.
Despite premium growth, the industry’s total cost deteriorated to 102.5% in 2022, driven by above-average catastrophe losses, including 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. The total quotas of the commercial lines 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 expects an increase of around 7% in net premium income for this year.
“Ongoing tightening of premium rates and exposure increases in commercial lines, combined with an acceleration of pricing actions in personal lines, contributed to property/casualty premium growth above historical norms in 2022,” Fitch said.
Industry net income fell 31% in 2022 to $43 billion, driven by declining underwriting results in personal lines, Fitch said.
This was in stark contrast to net profits in the range of $60 billion to $63 billion in the previous four years.
“Variability in natural catastrophe losses is an ongoing issue, exacerbated by sharp increases in reinsurance costs and less reliable available capacity,” Fitch said.
Higher potential volatility in claims costs could result in future negative reserve development, Fitch said.
Its neutral sector outlook for US property/casualty insurance is based on stable to improved operating results this year.