Significant rise in US auto and property premium rates, says Fitch

Fitch Ratings believes US premium rates are likely to rise significantly in the automobile and property segments but claims volatility amid higher inflation and macro uncertainty may impede a return to underwriting profitability for insurers.

Fitch said US P&C industry underwriting results are likely to improve in 2023 as a result of rate increases, and is maintaining a neutral sector outlook on US P/C insurance based on stable-to-improving operating performance in 2023.

It said the personal lines sector should improve in 2023 as recent pricing and underwriting adjustments take hold amid “normalising” insured catastrophe losses, following declining underwriting performance in personal lines that drove a 31% drop in statutory earnings in 2022 for the P&C industry.

However, Fitch said underwriting profits may not return in 2023, and it forecasts a 100.4% industry combined ratio for the full year. It noted that above-average catastrophe-related losses and a sharp deterioration in auto segment results drove the industry combined ratio three percentage points higher in 2022 to 102.5%, significantly above the 99%-100% range for the previous four years.

As for commercial lines, combined ratios in aggregate are anticipated to slightly deteriorate from current underwriting profit levels.

Fitch said: “Growth in direct written premiums will moderate slightly in 2023 but remain above historical norms as momentum in personal lines premiums accelerates. Direct written premiums expanded by over 9% for the second straight year in 2022, tied to commercial and personal lines rate increases.”

It added: “Higher potential claims cost volatility may result in future adverse reserve development. Variability in natural catastrophe losses remain concerning, compounded by sharp increases in reinsurance costs and less reliable available capacity.”

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