Personal lines drive strong H1 for US P&C industry

The US property and casualty industry swung to a strong underwriting gain in the first half of this year, with the turnaround in personal lines expected to continue into 2025, while commercial lines may face modest pressure.

Figures from data analytics and technology provider Verisk and the American Property Casualty Insurance Association (APCIA) released in late August showed that the US insurance industry swung to an estimated net underwriting gain of $3.7bn in the first half.

That was a big improvement over the $23.4bn loss reported in the same period in 2023.

Verisk and APCIA noted that the combined ratio was 97.6 percent during the first six months of 2024, compared to the 104.2 percent for the same period in 2023.

Rating agencies Fitch and AM Best both released reports in September highlighting the improved US P&C results so far this year.

“The turnaround in the personal lines segment was primarily responsible for the improvement in underwriting results,” the AM Best report said.

Fitch said that the US property casualty industry’s strong revenue growth and record-high operating earnings in the first half of this year were fueled by underwriting profits and higher investment earnings.

“Barring large losses from natural catastrophes, the industry is on track for similar or slightly better full-year combined ratios and operating returns on surplus relative to the first half of 2024,” the rating agency said.

Operating earnings surged to $38.2bn, up from $6.6bn a year earlier, marking the highest six-month result on record, according to Fitch.

The rating agency said that premium growth remains “strongly positive”, with direct written premiums (DWP) up 11 percent and net written premiums up 10 percent year on year.

Personal lines DWP grew 15 percent, driven by auto and homeowners rate increases, while commercial lines moderated to a 5 percent increase.

Fitch noted the impact of improved personal lines performance and favorable loss reserve development from prior underwriting periods.

The personal lines direct loss ratio improved by 10 points to 68 percent, with significant improvements in auto physical damage and homeowners’ losses.

Commercial lines maintained a better loss ratio at 54.5 percent, though other liability and commercial auto experienced deterioration due to inflationary pressures.

Commercial price increases moderate in Q2

Fitch believes that personal auto results are likely to further improve into 2025, generating breakeven or better combined ratios as favorable pricing momentum continues.

“In contrast, commercial line results may modestly deteriorate if price increases do not keep pace with loss costs. Additionally, full-year company actuarial analyses of incurred losses may lead to a less favorable reserve experience in H2 2024,” it said.

The feedback from those tracking commercial P&C rates suggests a near-consensus is emerging that increases are moderating as commercial property slows from last year’s hard conditions.

WTW in September released the latest data from its commercial lines insurance pricing survey, which showed that US commercial insurance rates increased 5.9 percent in Q2 2024.

This represented a sequential slowing from 6.3 percent in Q1 2024, which in turn was down from 6.6 percent in Q4 2023. It also compared with 6.1 percent in Q2 2023.

This deceleration of price increases in Q2 has also been observed by others.

Marsh’s insurance market rate index showed a slowing of US increases in the second quarter to just 1 percent, compared with 3 percent in Q1 2024.

The Council of Insurance Agents & Brokers’ most recent market survey also showed a moderation, with pricing across all account sizes for US P&C commercial insurance lines rising by 5.2 percent in Q2, compared with 7.7 percent in Q1 2024.

The only outlier to this trend came from MarketScout, which reported rate increases of 4.4 percent in the second quarter, up from 3.9 percent in Q1 2024.

WTW explained that the deceleration had been driven by commercial property.

“This decline in commercial property pricing has significantly influenced the current market trend, leading to a slower rate of increase across the broader commercial insurance market, when compared to the first quarter of the year,” it said.

WTW added that the largest price increases in Q2 came from excess/umbrella liability and commercial auto, both of which saw a reported price increase above double digits.

Marsh’s index had shown that property rate increases moderated sharply to 2 percent in Q2 from 8 percent in Q1 2024, while casualty increases were flat at 4 percent and financial and professional lines were down 3 percent, compared with a 5 percent drop in Q1.

Casualty concerns rising among leaders

Insurance leaders on Q2 earnings calls suggested that increased competition in the property market has led to an easing of rate increases following strong profitability in 2023.

This year, casualty has come to the fore as the dominant theme on earnings calls. Several executives suggested that further casualty rate increases are needed to keep up with rising loss costs.

On Chubb’s Q2 investor call in late July, chairman and CEO Evan Greenberg said P&C pricing “is reasonably rational, financial lines aside”.

Greenberg said “overall conditions remain favorable in both property, which is naturally more competitive, and casualty, which is firming in those classes that require rate”.

Loss cost inflation “remains steady”, and within what Chubb had forecast in its pricing and reserving.

CNA chairman and CEO Dino Robusto said that he is confident the rate rises in commercial auto and excess casualty – two of its segments most impacted by social inflation – will ensure it remains ahead of the rising loss costs it faces.

But Robusto believes further increases are needed.

CNA recorded a 1 point acceleration in its average ex-workers’ comp commercial rate during Q2 to 8 percent, covering its loss cost trend of 6.5 percent.

“Specifically for commercial casualty lines like auto and excess casualty, written rate change continues to be low double-digit and covers loss cost trend for the respective classes,” Robusto said.

He noted, however, that loss cost trends in certain casualty classes within its commercial portfolio, such as commercial auto, primary general liability and excess casualty, have actually doubled over the last five years due to social inflation.

“Today the long-run loss cost trends for commercial auto and excess casualty are low double-digit,” said Robusto.

“Primary general liability is slightly above the overall average, property is slightly below and workers’ compensation long-run loss cost trends are lower than the overall average,” he added.

Robusto forecast “a little bit of moderation in the rate decreases” within the financial lines segment, with pricing in that class varying from month to month.