P/C Insurers To See Steady Profits In The Face Of Headwinds, Fitch Says

Fitch Ratings-Chicago-06 December 2021: U.S. property/casualty insurers are poised to generate statutory underwriting profits and steady earnings next year, despite challenges from higher inflation and a likely reduction in contributions from investment gains according to Fitch Ratings' 2022 Outlook report for the sector.

Fitch holds a neutral fundamental sector outlook for the U.S. P/C sector in 2022. The sector outlook considers the influence of underlying fundamentals foreseen for 2022 on financial performance relative to results in 2021. The aforementioned headwinds and waning commercial lines pricing momentum could present issues for the sector beyond 2022.

'Underwriting profitability for the U.S. property/casualty insurance industry is likely to improve in 2022 to a 97% combined ratio due to continued favorable commercial lines pricing,' said Fitch Managing Director Jim Auden. 'Anticipated 2021 improvement was tempered somewhat by above-average natural catastrophe losses and deterioration in personal auto segment results.'

'Rising inflation and supply chain constraints affected 2021 claims in property and automobile segments, with higher costs for building materials, auto parts and skilled labor,' said Auden. 'If higher inflation patterns persist, affecting claims cost factors such as medical and litigation costs, profitability and reserve strength would be expected to weaken in longer-tail segments, including workers' compensation and other liabilities.'

Evolving catastrophe risk exposures will add volatility to P/C insurers as well. Global insured losses from natural catastrophes mounted in 2021 with unusual first quarter winter storm losses, up to $40 billion in estimated losses from Hurricane Ida, and potential for up to $10 billion in losses from an active California wildfire season. As a result, (re)insurers are increasingly reducing capacity in catastrophe-prone regions, leading to further price increases.

'Fitch Ratings 2022 Outlook: U.S. Property/Casualty Insurance' is available at 'www.fitchratings.com'.