Swiss Re: After 2022 drop, P&C ROE is looking up

If Swiss Re's prediction for 2023's ROE materializes, it would mark the strongest YoY improvement since 2009.

When it comes to underwriting, Swiss Re predicts the industry combined ratio will improve to 100% in 2023 and 98.5% in 2024 – compared to 102.4% in 2022. (Credit: apana_Studio/Adobe Stock)

Swiss Re expects the return on equity (ROE) of the U.S. P&C industry to be significantly better in 2023 and 2024, compared to 2022, according to their latest U.S. Property & Casualty Outlook.

An active year for NAT CAT events – including Hurricane Ian, which caused more than $100 billion in damage in Florida – and high inflation led ROE to fall in 2022. However, underwriters are now taking inflation into account, and the Swiss Re report predicts a narrowing of the gap between commercial and personal lines loss ratios as well as premium growth of 7.5% in 2023 and 5.5%. This forecast has ROE improving to 8% in 2023 and 9.5% in 2024 on account of higher premium rates and investment yields.

In 2022, the ROE was just 2.5%. If the projection of a 7.5% ROE in 2023 comes to pass, it would mark the strongest year-on-year improvement since 2009.

“Last year the industry saw an underwriting loss of USD 23 billion and net investment income of USD 49 billion,” the report states. “Realized capital gains were marginally negative for the first year since 2009, offsetting the benefit from higher interest rates. Looking forward, rate actions taken in response to underwriting deterioration will show up in earnings, investment gains from higher interest rates are accruing and inflation has passed its peak.”

When it comes to underwriting, Swiss Re predicts the industry combined ratio will improve to 100% in 2023 and 98.5% in 2024 – compared to 102.4% in 2022. It has yet to be seen how high natural disaster activity in the first quarter of 2023 – including damaging tornadoes and wind storms – will affect projected profits.

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