US P&C heads to sweet spot of premium gain & disinflation: Swiss Re
The US P&C insurance industry may be hitting a sweet spot in 2024 as premium growth picks up pace in the most battered lines and disinflation gives breathing room from the claims side, analysts at Swiss Re have indicated.
“Our forecast for 2024 is decidedly more favourable than 2023, with expected strong premium growth and easing inflation pressures,” analysts said of their updated outlook, following upward revisions of 2024 premium growth forecasts.
Swiss Re now expects 7.0% growth in direct premiums written in the US P&C industry, a notable hike from the 5.5% growth forecast issued in September. Even 2023 premium growth has edged out the forecast from September. For 2025, Swiss Re has pencilled in an initial estimate for 4.5% premium growth.
Other key 2024 forecasts for the industry, including a 98.5% combined ratio and a 9.5% return on equity, remain flat from the prior reading. ROE might even extend a half a point for 2025.
The upgrade on premium growth forecasts is put to “new momentum” in personal auto and a belief that the rising premiums in personal lines overall will continue to compensate for comparative weakness in commercial lines and liability premiums which are holding flat.
Swiss Re likes the look of both personal auto and homeowner premiums following growth in excess of 13% through the first nine months of 2023 to put P&C industry premium growth just a notch from 10%. Personal auto rate increases exceeded 9% in each of the six months through November 2023, they added.
“In 2024, we expect commercial property growth rates in the high single digits, and liability rate growth in the low single digits, on average,” analysts said. Property has led commercial with rate gains that have proven “strong, but decelerating.” Most liability lines are either declining or growing at a low single digit rate, save for higher gains in commercial auto and umbrella, they noted.
The advent of disinflation will take off some pressure from the claims side.
“The lines with the strongest premium growth – property and personal auto – are expected to benefit the most from disinflation,” analysts wrote, forecasting a deceleration in property lines claims costs (ex-cat) as construction price inflation hits just 1.5% in 2024 and 3.0% in 2025. The widening gap between auto policy inflation and auto claims inflation should widen further in 2024.
Don't expect liability to be a beneficiary of disinflation, analysts warned. Liability “will likely receive least benefit” from economic disinflation and less favourable reserve development is likely on the impact of social inflation.
Closer to the bottom line, those trends spell a return to technical profits, albeit at the same 98.5% combined ratio for 2024 that Swiss Re forecast in September. Swiss Re has now pencilled in the same 98.5% for 2025.
The improvement from a roughly 103% reading expected from 2023 follows the normalisation of loss ratios in personal auto after the loss ratio went 21 points above commercial lines in the first nine months of 2023. Commercial lines, the comparative margin haven for the industry to date, “will likely begin to face margin pressures,” analysts warned.
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