US P&C can’t catch runaway claims; Swiss Re cuts industry profit outlook

Rate acceleration in US P&C insurance has yet to close the gap to runaway claims costs through the first half year, triggering a downgrade to the 2023 earnings outlook from analysts at  Swiss Re.

“The P&C industry has not yet reached the inflection point between premium growth rates and claims costs," analysts wrote in their latest research.

Rate gains enacted by carriers through the first half were instead offset by “the costliest second quarter for natural catastrophe since 2011, persistent inflation and slowing favourable reserves development,” analysts wrote.

“Overall, we expect rate increases through 2023 as inflation and catastrophes put upward pressure on claims and operating costs,” analysts wrote.

The upshot: Swiss Re cut its forecast for US P&C carrier return on equity from 8.0% to 6.5% and upped premium growth forecasts as the industry remains in the case for rate adequacy. Premiums should grow 9% in 2023, up from a prior forecast for 7.5%.

Underwriting results will be written in red for 2023, with the industry bottom line only saved by rising investment earnings.

Mark the 2023 combined ratio at 102.0% after second quarter nat cat delivered losses worthy of 11.8 points, well above the 10-year average of 6.3 points.

Inflation has been a severity driver, but Swiss Re is now expecting headline inflation to slow to 4.0% in 2023 and 2.5% in 2024 “setting the stage for improved underwriting results as rate gains eventually outpace claims costs.”

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