As Q1 2024 earnings near, insurance industry outlook brightens

As insurance carriers are about to announce first quarter 2024 financial results, most analysts, company executives, and others are predicting a good – or even better – outlook as the economy strengthens, interest rates stay high, and margins improve. Premiums are on the increase, claims cost inflation has slowed, and investment returns, already on the uptick, are expected to persist in 2024.

Eliminate auto and homeowners from the equation and the business has been downright robust for the last few years.

“I think a lot of the improvement in some of the key business lines has really snowballed in the last couple of months,” said Tim Zawacki, principal research analyst at S&P Global Market Intelligence. “I think the personal auto business is materially better and we're approaching a point where companies will need to decide whether it's time to pivot to a more competitive posture in their business lines.”

Pricing decisions and trends are going to be the biggest and most important factors going into the full year, Zawacki said, a point echoed by other industry executives. Consumers and businesses might not be happy, though.

“I think we're going to see insurance carriers continue to increase premiums 4% to 5% annually,” said Todd Greenbaum, president and CEO of Input 1, a major billing and payment solutions company for insurers. “And we’re going to continue to see higher investment returns, so I think that the performance of these companies is going to be very, very good.”

Obstacles persist

It won’t be smooth sailing for everyone, though, as obstacles persist.

"The insurance industry faces ongoing challenges in 2024 due to higher replacement costs, inflation, and increased risks related to climate change,” says David Bairstow, senior vice president and general manager, insurance, of EagleView Technologies, an aerial imagery and data analytics firm in Washington state. “This is unlikely to change and creates a tough environment for underwriters.”

Bairstow says to overcome the challenges more insurers will continue the drive to adopt technology and analytics to push down costs and inform underwriting decisions.

Overall, the property and casualty business, though stung by rising replacement costs and severe weather-related disasters, could expect to bounce back this year, according to some industry executives.

"The P&C industry is riding on strong momentum,” said Gregg Barrett, CEO of Waterstreet Company, a group of property and casualty experts based in Montana. “Despite a challenging year in 2023, marked by profitability falling below insurers' cost of capital, the industry began to see a turnaround in the second half of the year. These trends are anticipated to persist into 2024, bolstering profitability.”

Higher ROEs expected

Barrett said he expects to see higher ROEs this year as margins in personal lines improve.

“We could see a significant increase from the estimated 5.0% ROE in 2023, which was impacted by persistent inflation and high insured losses from severe convective storms,” he said. “Notably, underwriting losses stood at $33 billion through 2023. However, there's a silver lining as industry profitability shows favorable momentum, evidenced by a differential in net premiums earned and net claims incurred in Q3.”

The growth this year, he said, will be predominantly driven by personal lines, with personal auto leading the charge, thanks to rising premiums, regulatory rate relief and other positive factors.
“Despite mixed growth in commercial lines, with strong property growth offsetting weaker liability growth, overall industry growth is promising,” Barrett said. “The momentum in personal auto and homeowners' premiums is particularly noteworthy, with each registering more than 13% growth last year.”

Homeowners insurance still problematic

Individual homeowners insurance is still a problematic line, however, as costs and premiums rise and availability in some states becomes limited.

“Homeowners is a different story,” said S&Ps. Zawacki. “There's a totally different dynamic there because it's not as much a pricing situation as it is the underlying drivers of loss costs and profitability.”

Zawacki said all companies are prone to being cautious, but homeowner insurers will be even more so.

“I think they're going to be incredibly conservative when it comes to homeowners because there are just so many different unknowns and uncontrollable aspects of the loss costs picture,” he said.

In some cases, Zawacki said, companies may find it hard to match their 2023 performance.
“2023 was a heck of a year for a lot of companies,” he said. “I think the question becomes: ‘Is the market becoming more competitive?’ An awful lot of capital flowed into the U.S. market and how that gets allocated and whether that pressures rates and what that impact is on supply to demand dynamics will be something to watch for those carriers that had a good year last year. It's difficult to imagine that it's going to be quite that favorable this year.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].