One of the highlights of AIRROC’s Summer Membership Meeting was the keynote address by James Finucane, a Senior Economist with the Swiss Re Institute. Mr. Finucane provided the outlook for the property casualty insurance market with a focus on industry growth, underwriting profitability and investment returns. The upshot is that the industry is on a favorable trajectory, with ROE near 14% after strong underwriting results. Momentum is backed by strong premium growth and easing inflation, and stronger investment returns. A video replay of this presentation is available on the AIRROC On Demand platform.
Here are the key takeaways from the presentation:
Industry growth will slow from elevated levels as GDP growth normalizes, with personal line rate increases driving continued growth. P&C direct premiums written growth of 8.0% is forecasted in 2024 and 5.0% in 2025, after a close-to 10% annual gain between 2021 and 2023.
Underlying profitability to improve in 2024 and stabilizing in 2025, as lower (but persistent) inflation reduces claims pressures and lagged rate increases earn through. The 1st quarter 2024 combined ratio of 94% was an 8 point improvement from 102% a year earlier, driven by strong underlying results and aided by a lighter catastrophe loss burden.
Overall profitability receives an additional boost from higher yields – especially for long-tail lines – partly offset by higher cost of capital. Investment yields are expected to rise to 3.7% in 2024 and 4.1% in 2025.
Risks lurk – catastrophe trends and social inflation are headwinds that require rate and capital growth. Social inflation could further weaken favorable reserve development, an economic downturn could impact premium growth, and persistent economic inflation could put further pressure on claims costs, each negatively impacting industry ROE.
