US property & casualty outlook: higher premiums and interest rates could offer insurers respite this year

2022 was a difficult year for the US P&C industry: claims severities surged with inflation, natural catastrophe losses were elevated for a sixth straight year, and the lowest realized capital gains since 2009 offset higher fixed income yields. Higher used car prices alone caused auto insurers an estimated USD 15 billion of extra claims costs; costlier repairs added to the bill. Elevated construction costs reduced profitability in property lines.

We forecast better results in 2023 and 2024 as inflation eases, and premium rates and portfolio yields increase. The 20 percentage point (ppt) gap between commercial and personal lines loss ratios in the first nine months of 2022 is likely to decrease in 2023 as personal lines rate increases gain momentum and the drivers of motor inflation decelerate. This newsletter summarizes statutory data as of 3Q22, and provides estimates and forecasts from fully year 2022 to 2024.

• Inflation, catastrophes and volatile markets eroded the benefits of nominal premium growth and interest rate increases during 2022.
• Used car inflation caused an estimated USD 15 billion in extra claims costs in 2022.
• We estimate ROE will improve to 7.0% in 2023 and 8.0% in 2024 on higher premium rates and investment yields.
• We forecast premiums will grow 7.5% in 2023 and 5.5% in 2024 after two years of growth above 9%.
• Slowing rate gains in commercial lines will likely be partly offset by acceleration in personal lines.