US P&C insurers get a break in 2023 even as premiums slow: Swiss Re

US P&C insurers can get ahead of receding loss cost inflation even as rate growth slows in 2023, albeit leaving inflation increasingly focused on reserve-sensitive segments, analysts at  Swiss Re Institute are claiming.

Higher underwriting and investment income can combine to give a boost to long-stifled return on equity readings. Swiss Re expects ROE to reach 7.0% in 2023 and 8.0% in 2024, from an estimated 2.5% in 2022

“We expect loss severities to ease as headline inflation decelerates,” analysts said of the upside to underwriting income, citing a forecast for 3.7% headline inflation in 2023.

But the inflation picture is not homogenous. Wages and healthcare cost will take over from materials and repair to lead claims inflation readings in 2023.

That could “weaken reserve adequacy and slow the profitability improvement,” particularly in longer-tail liability exposures, which account for roughly half of industry premiums but nearly 90% of reserves, Swiss RE warns.

But the personal auto claims inflation that destroyed many a P&L in 2022 could give way to “rapid improvement” in 2023.

The top line has less chasing to do. Swiss Re expects nominal growth in direct premium written to slow to a “still-strong” 7.5% in 2023 and 5.5% in 2024 from 9.3% in 2022. Analysts expect growth to be driven by rate with slight exposure increases.

Prices will offer a boost. “We expect continued rate increases through 2023” as inflation, nat cat and geopolitical uncertainties including cyber push from the cost side.

“Downside risks remain, and a more severe-than-expected recession or inflation this year or in 2024 would pose risks for insurers’ exposure and premium growth, claims costs, investment yields and capital gains,” analysts nonetheless warn.

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