Fitch P/C credit outlook neutral, life insurance outlook improving for 2024

Fitch Ratings’ analysts came up with a largely “meh” prediction when it comes to its overall 2024 credit outlook for property/casualty insurance. However, the ratings agency showed some optimism in its 2024 credit outlook for personal auto and life insurance.

In a recent webinar, Fitch reported its credit outlook for the P/C sector as neutral for 2024. Separate outlooks on personal lines and commercial lines also are neutral.

In explaining how Fitch came up with this outlook, analysts considered how underlying business fundamentals will impact financial performance in the coming year relative to 2023 results, said Jim Auden, managing director and head of P/C with Fitch. “Our outlooks also consider that the industry broadly maintains capital strength to support obligations and withstand significant adverse loss events,” he added.

The P/C industry showed strong premium growth in 2023, with industry-earned premiums up more than 9% through the first nine months of the year, Auden said. However, he added, Fitch predicts statutory underwriting results and profits will deteriorate in 2023, with net P/C earnings down an estimated 15% for the year. Those decreased earnings are largely tied to the second consecutive year of weak results in personal lines, he said.

Personal auto, the largest individual U.S. personal P/C line, reported a second consecutive year of large underwriting losses in 2023, Auden said. Fitch attributed these underwriting losses to the consequences of the COVID-19 pandemic, which include higher inflation, supply chain shortages and a tight labor market. These factors led to a spike in loss severity trends on bodily injury, collision and damage coverage that auto insurance writers were slow to respond to in their pricing, partly due to regulatory constraints.

Auto writers seeing improvement

Looking ahead, recent sharp increases in personal auto pricing combined with moderating loss severity trends will help personal auto lines’ credit outlook improve in 2024, Auden said.

“A few of the more traditionally successful large auto writers are already reporting a turnaround in performance,” he said. Among the factors contributing that that turnaround are used car prices dropping and the length of time needed to complete repairs decreasing.

Homeowners insurance also took a hit in 2023, with Fitch predicting that sector will experience its fifth underwriting loss in six years, despite a respite from hurricane losses last year. Large losses in homeowners insurance for 2023 were tied to what Auden described as “substantial catastrophe losses from inland convective storms.”

However, Fitch is taking a more optimistic outlook for homeowners insurance in 2024, with Auden saying “significant underwriting and pricing changes, and a hopeful revision in catastrophe losses will promote better results” this year.

Commercial lines underwriting gains may narrow in 2024 but pricing trends are anticipated to remain largely positive, Auden said. Issues to watch this year include assessing whether pricing can continue to keep pace with loss trends, as well as looking at how insurers manage catastrophe risk amid event occurrences and higher reinsurance costs.

The overall P/C industry performance is expected to improve in 2024, Fitch predicts. That outlook is fueled by better performance in the auto insurance sector as rate increases take hold, claims severity trends moderate, and investment income grows.

Fitch says its life insurance credit outlook improving

Fitch’s 2024 credit outlook for the North American life insurance sector is improving, said Jamie Tucker, Fitch senior director and head of life insurance. This compares with Fitch’s neutral outlook for the sector for 2023.

The credit quality for the life insurance sector remains strong, Tucker said. This is large reflective of the higher interest rate environment and the benefits of higher reinvestment rates, improved spreads and enhanced margins.

“The U.S. economy has remained resilient in 2023, although we do expect a slowdown and continued macroeconomic volatility in 2024. But we do expect the U.S. will avoid a recession,” he said.

Fitch saw “noticeable rates of lapses and surrenders” of life insurance policies in 2023, Tucker said, although those rates were below insurers’ lapse rate assumptions.

Annuities were a bright spot in the Fitch outlook, with Tucker saying the ratings agency expects sales of fixed rate annuities to be strong in 2024. This comes as fixed rate annuities drove double-digit increases in annuity sales in 2023.

“Overall, we view the life insurance industry as broadly well-positioned to withstand the macroeconomic uncertainty in 2024,” he said.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.

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Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].