Another View: Yes, P/C Industry Underwriting Profit Will Be Back in ’24

Not all analysts think an underwriting profit is out of reach for 2024.

While a recent forecast from Fitch Ratings puts the 2024 combined ratio above 100, a report by Swiss Re Institute projects both 2024 and 2025 to have a combined ratio of 98.5 for the U.S. property/casualty industry.

Like analysts at Fitch, economists from Swiss Re Institute estimate a 2023 combined ratio of roughly 103. But not only do the Swiss Re economists believe 2024’s combined ratio will come in 1.5 points under breakeven, they also forecast a return-on-equity for the U.S. P/C industry of 9.5% in 2024 and 10% in 2025, according to Swiss Re Institute’s U.S. P/C Outlook report. In contrast, Fitch expects the industry 2024 return-on-surplus to come in at about 5% — below the long-term historical average of 7.5%.

The Swiss Re Institute outlook report reviewed key financial measures through the first nine months of 2023 and noted that industry profitability had favorable momentum. “In the third quarter, net premiums earned increased 9% while net claims incurred rose only 6%. We expect this differential to persist in 2024,” the report says.

What will not persist, according to the report, is the gap between personal and commercial lines loss ratio results. While the industry direct personal lines loss ratio through nine months in 2023 (78.2) was nearly 21 points above the comparable commercial lines loss ratio (57.3), “personal lines premiums are growing faster and easing economic inflation primarily benefits personal lines claims costs.” At the same time, social inflation continues to impact commercial lines, the report notes.

“We see a risk that social inflation could negatively impact industry ROE by weakening favorable reserves development,” the report says, noting that reserve releases during the first nine months of 2023 only shaved 0.7 points off the combined ratio.

The 0.7 point figure is “the weakest since 2004,” the report says.

The Swiss Re Institute report includes a table with line-by-line direct premiums for the first nine months of 2023, year-over-year direct premium growth, direct loss ratios and loss ratio changes. The chart shows that for all commercial lines taken together, premiums grew 6.6% and personal lines premiums grew 13.4%.

The Swiss Re economists are forecasting 7% growth in direct premiums across all lines in 2024, and upward revision from a prior estimate of 5.5%. They cited momentum in personal auto for the change.

Looking ahead to 2025, they forecast that premium growth will drop to 4.5%.

The report also discusses the impacts of economic disinflation on claims costs and higher investment yields on investment income.