What’s on the horizon for US P&C earnings in 2024?

The year 2024 will deliver a significant improvement in property and casualty (P&C) insurance statutory earnings driven by a recovery in personal lines and only a slight decline in commercial lines underwriting, as per a new report from Fitch Ratings.

The report also highlights an anticipated narrowing of personal lines underwriting losses, especially in auto insurance, as natural catastrophe losses are expected to return closer to historical norms.

According to Fitch, revenue growth in the P&C insurance sector is expected to decelerate in 2024, with a projected 7% increase in both direct and net written premiums, a decline from the 10% increase seen in 2023.

This previous growth was fueled by strong commercial lines performance and significant price increases in personal lines. The report credits the favorable performance in commercial lines to an unusually prolonged hardening phase in market pricing, which is expected to continue through 2024.

Fitch noted that the underwriting results in 2023 faced challenges due to less favorable personal lines outcomes and higher than average natural catastrophe losses, though these were partially mitigated by notable profits in commercial lines.

Despite this, the P&C insurance industry recorded a modest improvement in statutory underwriting performance and slight growth in net earnings for 2023, with a combined ratio (CR) of 101.6% and a return on surplus (ROS) of 3.7%, which is below historical norms.

The report also noted continued volatility in natural catastrophe exposures for property insurers, largely due to the risk from large inland convective storms which led to above-average insured losses in 2023, despite the absence of major hurricane landfalls.

Furthermore, increasing claims severity across multiple segments, influenced by inflation and expanded litigation activity and settlement costs, poses challenges for accurately pricing coverage and projecting loss costs.

Additionally, adverse reserve experiences in longer tail casualty segments are expected to persist in the near term.

On the financial side, statutory earnings retention along with material unrealized gains on investments contributed to a 5.5% increase in policyholders’ surplus, pushing it above $1 trillion once again. However, lower investment returns resulted in a 6.7% decrease in surplus. The industry’s statutory leverage measures remained at relatively conservative levels at the end of 2023.

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