The U.S. property/casualty (P&C) insurance industry performance is anticipated to improve in 2024, “fueled by better personal auto performances as rate increases take hold and claims severity trends moderate, and growth in investment income from higher yields,” according to a report by Fitch Ratings, titled “U.S. Property/Casualty Insurance Outlook 2024.”
Personal Auto Driving Results
“The P&C industry will report a larger 2023 underwriting loss and decline in statutory earnings relative to 2022 due to a second year of uncharacteristic weak results in the personal lines sector,” the report explains. Personal auto impacts the results significantly as it represents approximately 35% of all written premiums, notes Fitch.
Regarding personal auto, the report states, “Record profits in 2020 from a pandemic-related decline in claims frequency was shortly followed by substantial 2022 underwriting losses as loss severity trends on bodily injury, collision, and physical damage coverage spiked from higher inflation, supply chain shortages, and tighter labor markets.”
The report adds, “Persistent high loss severity, combined with a delayed market pricing response to adverse experience, partly due to regulatory factors in several states, led to further poor results in 2023. The auto industry combined ratio is anticipated to improve slightly to 109% from 112% in 2022.”
But accelerating rate increases as of October combined with somewhat moderating claim severity patterns offer hope for 2024. The combined ratio for personal auto is expected to improve further next year, albeit not to a level where the auto market sees an underwriting profit.
Homeowners Line to Improve While Facing Challenges
“The homeowners line consistently reported underwriting losses in the last several years,” the report states. “Despite no major hurricane events, performance deteriorated sharply in 2023 from convective storm losses.” Indeed, global insured losses from natural catastrophes, according to the report, reached $88 billion through nine months of 2023, “with the number of individual events generating losses over $1 billion expected to set a new record in 2023, according to Aon Corporation.”
Actions by underwriters and “normalized catastrophe experience will foster better homeowners results in 2024,” according to Fitch, but the long-term challenge will be “insuring to value and managing rising claims costs amid higher inflation that affects building and repair costs and property valuation.”
Commercial Lines
“The commercial lines sector is expected to continue to generate an underwriting profit and earnings stability in 2024,” states the report. However, “Claims cost volatility from inflation, macroeconomic uncertainty, and higher litigation activity add to underwriting and loss reserve risk.”
Speaking to CLM, Jim Auden, managing director, Fitch Ratings, says, “Claims professionals will face challenges with assessing loss severity risk in 2024, despite signs of tempering economic inflation. The pace of changes in loss cost factors will remain quite variable, particularly relating to property and commercial auto claims. Expansion in the volume of claims with attorney involvement and rising legal verdicts and settlement costs will also continue to challenge claims departments in 2024.”