Continued favorable commercial lines pricing and stabilization in personal auto results will lead to 2022 underwriting and profit improvement for U.S. property casualty (P/C) insurers, Fitch Ratings says in a new special report. However, surplus growth is likely to diminish significantly relative to the past three years.
The P/C industry saw a slight deterioration in 2021 statutory underwriting results, modest net earnings growth and very strong surplus growth tied to investment gains. The industry continued to generate relatively steady operating performance in 2021 as statutory earnings grew by 4%, ranging from $60 billion-$63 billion annually since 2018. Industry policyholders’ surplus increased by 40% over the past three years, influenced by favorable equity market performance and now exceeds $1 trillion, moving the ratio of written premiums to surplus to an all-time low of 0.67x.
Fitch is projecting a 5% increase in net written premium growth for 2022 driven by hardening in in both commercial and personal lines, down from the outsized growth of nearly 9% in 2021, the highest level since 2003. The statutory combined ratio is projected to decline to 97% for 2022, down from 99.7% in 2021, presuming insured catastrophe losses toward historical norms relative to the past two years. Return on surplus is projected to remain below 7% as lower investment earnings and a larger surplus base restricts improvement.
Insurers continue to face considerable economic and investment market volatility, particularly from the onset of higher U.S inflation tied to looser monetary policy and supply chain issues that creates uncertainty in estimating loss costs in pricing and reserving. Shorter tail property and auto lines were most affected by higher incurred losses in 2021 from inflation. Longer tail casualty lines are more affected by a prolonged period of inflation, which may boost key claims factors such as medical and litigation costs.