US property & casualty outlook: Hurricane Ian adds to the pressures on insurers

We expect Hurricane Ian to be the second-costliest hurricane ever for the US P&C industry. In addition, statutory data through 2Q22 confirms that inflation continues to pressure results, especially in personal lines. Personal auto is on track for a 2022 combined ratio above 106%. Premiums continue to grow strongly, but higher claims severity has eroded the profitability benefit of rising rates. The sector combined ratio reached 103.7% in 2Q22, or 103.0% excluding reserve releases and normalizing for cat losses. Higher interest rates will gradually benefit insurers but near term, realized capital losses will offset gains from higher reinvestment yields. We raise our forecast for nominal direct premiums written (DPW) growth to 9.8% in 2022 and 7.0% in 2023. We reduce our 2022 return on equity (ROE) estimate to 2.5% from 5.5%, with our 2023 forecast at 6.0%.

Key takeaways:

•    Hurricane Ian is expected to be the second-costliest hurricane in history.
•    Persistent and widespread inflation is weighing on profitability, eroding the benefit of rate increases and nominal premium growth.
•    Personal auto had adverse results through 1H22 and is on track for a direct combined ratio above 106%.
•    We raise our premium growth estimates to 9.8% in 2022 and 7.0% in 2023.
•    We reduce our 2022 ROE estimate to 2.5% from 5.5% and maintain it at 6.0% for 2023.