US P&C on track for 2022 underwriting gain despite headwinds: Fitch
US property and casualty insurers will likely enjoy another year of underwriting profits despite headwinds, as rate increases past and future push the industry's combined ratio down several points to some 97 percent, analysts at Fitch said in a report.
Written premium growth is anticipated to decline to approximately 4.5 percent from some 8 percent in 2021, authors wrote. "Besides inherent uncertainty tied to natural catastrophe experience, 2022 results will hinge on sustainability of the positive commercial pricing environment and ability of personal auto writers to respond to deteriorating results through pricing actions.”
That pricing environment will be largely supportive, with the long-run rate of increases still accumulating to insurers, but with new rate increases now clearly past the peak, authors warned.
"The magnitude of rate increases are anticipated to decline, but remain positive through 2022," report authors wrote. "However, benefits from recent rate increases, as well as more conservative shifts in underwriting terms and conditions, will support further underwriting performance improvement near term."
The gain from past pricing gains will continue to flow through earned premiums and help drive the downward move in the combined ratio, authors added.
Some of the price increases follow a reduction in primary carrier and also reinsurer presence, authors indicated. "(Re)insurers are increasingly reducing capacity in catastrophe-prone regions as losses mount, leading to further price increases."
Evolving catastrophe exposures are said to add volatility and increasing frequency in secondary peril events "continue to pose a challenge in measuring exposures and potential losses," authors noted. Aggregation management remains the key mitigation response.
The list of factors threatening to derail the stable profit outlook is dominated by continued uncertainties tied to natural catastrophe losses, but also includes a return to normalised post-pandemic frequency trends in claims and concerns about severity driven by inflation, authors warned. "Higher inflation and supply chain issues will add to incurred losses for near-term events" and could "add to the potential for larger pricing errors in all lines," authors noted.
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