U.S. property/casualty insurers represent a source of stability amid the recent tumult of socioeconomic disruption from the coronavirus pandemic. The industry strengthened its capital base and generated consistent statutory underwriting performance and net profits in the last four years, despite volatility in claims losses from natural catastrophes, pandemic-related claims and litigation-related loss severity.

Executive Summary

Even though the P/C insurance industry recorded underwriting profits in 2021, and the industry is positioned to generate a better statutory underwriting profit and net earnings growth in 2022, the road ahead has some obstacles, including the likelihood that pricing momentum will subside in commercial lines and rising loss potential in personal lines tied to inflationary trends and natural catastrophes, writes James Auden, managing director, Insurance at Fitch Ratings. Here, he summarizes key profit measures for the last five years and notes the growing chance that the overall industry won't see true hard market returns on capital in the current cycle.

However, returns on policyholders surplus fell to 6.4 percent in 2021, relative to a long-term average of 7.7 percent, as underwriting margins deteriorated slightly and recent PHS growth from investment gains has outpaced earnings.

A number of publicly held commercial and specialty lines writers generated low-90s combined ratios or better, together with double-digit operating returns on equity in 2021. However, there is a growing chance that the vast improvement in commercial lines market conditions over the last three years will not lead to true hard market returns on capital for the overall market in the current cycle.

Operating performance in 2022 will benefit from recent growth flowing through earned premiums. Potential for material profit improvement may prove more difficult beyond 2022 as pricing momentum is likely to subside while numerous sources of underwriting uncertainty remain in place.

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