US property & casualty outlook: natural catastrophes and surging inflation extend rate hardening into personal lines
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We expect losses from catastrophes late in 2021 to reinforce rate hardening momentum in US P&C in 2022. The December timing of deadly tornadoes in Kentucky and neighbouring states and wildfires in Colorado was atypical – a reminder of the evolving climate risks facing society. Profitability pressures, from the spike in economic inflation to ongoing social inflation, will likely sustain the need for higher pricing across all lines of business, including in personal lines, which lag the loss cost trend. We maintain our 2021 estimate for sector ROE at 6.2% and project the same for 2022. We anticipate that rate gains will slightly outpace loss-cost increases, but we expect a lag in investment returns. We lift our 2021 direct premiums written (DPW) growth estimate to 9.5% based on strong YTD growth, with a forecast of 7.6% growth in 2022.
Key takeaways
• Elevated nat cat activity in 2H21 should support ongoing rate hardening momentum through 2022.
• Profitability pressures remain: economic and social inflation, and likely low investment returns.
• Hence, we leave our 2021 and 2022 industry ROE forecasts unchanged at 6.2%.
• We raise our 2021 DPW growth estimate to 9.5% based on the positive rate momentum.
• We see 2022 DPW growth at 7.6% given a less favourable year-on-year comparison than in 2021.
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