Insurers Post 2022 Losses Due to Inflation and Natural Disasters

Homeowners insurance rate hikes are probably likely in the future as Fitch Ratings found U.S. homeowners’ insurance is poised to post a statutory underwriting loss for 2022 as insurers continue to deal with above-average catastrophe losses and uncertainty from persistently high inflation, and macroeconomic volatility. 

However, according to Fitch, further material rate increases in most jurisdictions support strong premium growth in 2023, with segment results likely to improve going forward. 

But uncertainty related to catastrophes and claims severity patterns may inhibit a near-term return to underwriting profit. Fitch anticipates the property/casualty industry will post a statutory underwriting loss in homeowners for the year, with a segment combined ratio projected at 105%. The segment combined ratio exceeded 100% for five of the last six years. 

Performance volatility continues to hinge on catastrophic experiences: larger underwriters benefit from capabilities in managing catastrophe exposures and risk aggregations, and garnering efficiency from technology investments. 

“Aon’s recent catastrophe report estimates insured catastrophe losses in the U.S. exceeded historical averages at $99 billion in 2022, the third consecutive year that losses exceeded $90 billion, Fitch said. “Insured losses from Hurricane Ian may ultimately represent approximately half of all 2022 catastrophe losses. Additional U.S. events with insured losses in excess of $1 billion in 2022 include multiple inland storms, and wildfire and drought in western states.” 

“Given the more fragile economic environment, homeowners’ writers will need to renew focus on several areas including: insuring properties to value under unique housing and construction market conditions, factoring inflation and tight labor market conditions in pricing and claims estimation and utilizing information technology to boost operating efficiency and customer experience in the application and claims process,” Fitch continued. “Ongoing underwriting changes and premium rate increases position the homeowners’ market for continued revenue growth in 2023 and a return to approaching a break-even underwriting result, barring further unusually high catastrophe losses. Segment net written premiums increased by approximately 10% in 2022 to $114 billion. High single-digit premium growth is likely to continue through 2023.”

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