The US property and casualty (P&C) insurance industry is poised for a strong profit year in 2024, bolstered by better underwriting results and rising investment income, according to Swiss Re’s recent insights. The combined ratio has improved significantly to 98% for the first half of 2024, a seven-percentage-point (ppt) improvement from the previous year. This is largely attributed to a notable 11 ppt reduction in the personal lines loss ratio, despite ongoing pressure from severe storm activity, particularly in homeowners’ insurance.
Premium Growth and Investment Income Drive Profitability
Premium growth remained robust in the first half of 2024, rising by approximately 10%, largely driven by personal lines. This growth, coupled with higher reinvestment yields that surpassed portfolio yields, created a tailwind for the industry’s profitability. Swiss Re now forecasts the industry’s return on equity (ROE) to reach 9.5% in 2024 and 10% in 2025, up from 3.4% in 2023. Net investment income for the first half of the year increased by nearly 30%, highlighting the continued benefit of higher interest rates.
Challenges Remain: Catastrophe Losses and Rising Competition
While the outlook is positive, the P&C industry still faces challenges, particularly from natural catastrophes. Severe convective storms and homeowners’ insurance claims have added over 7 ppts to the first-half loss ratio, with further potential risk from the ongoing hurricane season. Despite this, personal lines showed resilience, with an overall 14 ppt reduction in loss ratio year-over-year.
Rising competition is also likely to affect profitability in the coming months, especially as personal auto insurers are now filing for rate decreases. Swiss Re has revised its premium growth forecast to 9.5% for 2024 and a lower 4% for 2025 due to these pressures.
Outlook Remains Favorable for 2024
Despite the risks, the overall outlook for the US P&C industry remains favorable, with strong premium growth and improving underwriting results driving profitability. With ROE expected to remain near industry cost-of-capital levels and investment yields continuing to rise, 2024 is set to be a profitable year for insurers.
The industry will continue to monitor challenges from storm activity and rising competition, but the strong underwriting improvements and favorable economic conditions suggest smoother sailing ahead for the P&C sector.