Rating Agency Sees Profitable 2022 for US Property-Casualty Segment

US property-casualty insurance companies are poised to generate statutory underwriting profits and steady earnings in 2022, despite the impact of inflation and a likely reduction in investment gains, according to Fitch Ratings.

In its 2022 Outlook report for the US property-casualty sector, the rating agency indicated it holds a neutral fundamental outlook for the sector. Inflation and a reduction in investment gains along with waning commercial lines pricing momentum could present issues for the US property-casualty insurance sector beyond 2022, Fitch said.

"Underwriting profitability for the US property-casualty insurance industry is likely to improve in 2022 to a 97 percent combined ratio due to continued favorable commercial lines pricing," Fitch Managing Director Jim Auden said in a statement. "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," Mr. Auden said. "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."

Fitch said that evolving catastrophe risk exposures will also add volatility to property-casualty insurers. The rating agency noted that global insured losses from natural catastrophes grew in 2021 with unusual winter storm losses during the first quarter, up to $40 billion in estimated losses from Hurricane Ida, and the potential for up to $10 billion in losses from the California wildfire season. As a result of those losses, insurers and reinsurers are reducing capacity in catastrophe-prone regions, leading to further price increases, Fitch said.