US Property/Casualty Insurers Achieve Best Q1 Underwriting in 17 Years
In the first quarter of 2024, U.S. property/casualty insurers saw significant improvements in their financial performance compared to previous years. Despite rising direct loss ratios in commercial auto and other liability lines, the industry achieved its best net combined ratio (94) since 2007, signaling a return to underwriting profitability. This turnaround translated into an aggregate underwriting profit of $9.5 billion, a stark contrast from the $8.0 billion underwriting loss recorded in the same period of 2023.
Fitch Ratings analysts predict a potentially profitable full-year for insurers, albeit with caution due to uncertainties such as loss reserve adequacy and potential natural catastrophes. While acknowledging the challenges in sustaining commercial lines pricing and managing heightened litigation risks, Fitch expects continued profitability supported by ongoing favorable results in workers compensation.
Key highlights include a notable decline in direct loss ratios for private passenger auto and homeowners, largely driven by reduced winter storm losses and improved personal auto performance. Conversely, challenges persist in commercial auto and other liability lines, with workers compensation seeing only modest improvement and negative premium growth.
The industry’s operating income surged by 300% year-over-year to $26.2 billion in Q1 2024, bolstered by a 32% increase in investment income and improved underwriting results. This resulted in an annualized operating return on surplus of 10.2%, a substantial rise from 2.4% in Q1 2023. However, Fitch points out that this increase was partly influenced by one-time events, including a significant dividend and realized gains from asset sales by specific insurers.
Looking ahead, Fitch maintains a neutral outlook on U.S. commercial lines insurance, citing concerns over inflationary pressures and slowing economic growth affecting loss reserve adequacy. Conversely, the outlook for U.S. personal lines insurance has been upgraded to improving, driven by recent pricing adjustments and moderating loss severity trends.
Despite the positive first-quarter results, uncertainties remain regarding insurers’ ability to accurately project claims severity amidst ongoing economic changes and regulatory challenges, particularly in commercial auto and liability markets. The industry faces the prospect of ending a nearly two-decade streak of favorable loss reserve development, depending on how these factors evolve throughout 2024.