US property & casualty outlook: claims inflation pressures underwriting profitability
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The intensity and spread of inflation is sending claims costs soaring. Strong rate hardening in commercial lines and acceleration in personal lines rates support topline growth, but higher claims severity is eroding the profitability benefit. We maintain our forecast for nominal direct premiums written (DPW) growth at 8.0% in 2022 and 6.3% in 2023. Risks are skewed to the downside, but we revise up our 2022 midpoint return on equity (ROE) estimate to 5.5%. We maintain our 6.0% ROE forecast for 2023.
Key takeaways
- Persistent and widespread inflation is weighing on profitability and eroding strong premium growth.
- We maintain our premium growth estimates at 8.0% in 2022 and 6.3% in 2023.
- We raise our 2022 industry ROE forecast to 5.5% and continue to expect 6.0% in 2023.
- Cyber is the fastest-growing line, with premiums up 74% y-o-y in 2021 and further momentum in 2022.
- Interest rate rises in H1 2022 created an estimated USD 100 billion mark-to-market fall in the value of bond portfolios, equivalent to 12% of industry capital.
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