[ad_1]
baona/iStock via Getty Images
U.S. property/casualty insurers face poor investment values and weak underwriting results, S&P Global (NYSE:SPGI) said the ratings division is prompting it to change its outlook on the sector from stable to negative.
Weaker credit trends are expected To continue this year, the rating agency said. The change in position reflects the negative impact of rising interest rates on capital and the resulting decline in market value of fixed-income portfolios in AOCI (accumulated other comprehensive income), and the negative impact on returns on statutory capital and low-value equity investments.
It also reflects the steady increase in capital required for business growth, higher levels of capital returned to shareholders and weaker underwriting results due to higher natural catastrophe losses and claims costs.
According to S&P Market Insights, underwriting performance deteriorated from 99.6% to 102.3% on a combined ratio (loss divided by earned premium) in the nine months to 2022. S&P Ratings expects a combined rate of 101%-102% in 2022, hurt by a decline in personal taxes.
The rating agency expects individual auto insurers to continue to see rate increases in the mid to high single digits to capture higher claims costs.
It said that rate hikes, which have been phasing out over the past two years, will remain at 5%-7% for standard business lines and at or above loss-making trends.
“These expectations should lead to a modest improvement in the industry’s statutory combined ratio to 99%-101%, with catastrophe losses contributing about 8 percentage points to the loss ratio,” analyst John Eden said.
Guidance assumes the U.S. economy will not deteriorate beyond S&P’s expectation of a modest 0.1% decline in gross domestic product in 2023 as the country enters a shallow recession. It expects growth of 1.4% again in 2024.
“While growth in direct premiums for property/casualty is generally in line with nominal GDP growth, the two may diverge in 2023 as property-exposed taxes earn rates in 2022 and exposure bases increase due to inflation,” Iten said. He said inflation may peak in the third quarter of 2022, but is expected to remain high until late 2024.
Pricing of commercial lines will be favourable, further supporting the divergence in GDP and direct premiums written. S&P forecasts unemployment to fall to 4.9% in 2023 and 5.3% in 2024, which will reduce workers’ compensation premiums and partially offset growth in direct premiums written.
Over the past year, the SPDR S&P Insurance ETF (KIE) Vanchi is up 11% The 5.2% Decline in Select Sector SPDR Fund ETF (XLF) and this 6.2% A fall in the S&P 500 index.
Earlier, BMO Capital acquires the selected Selection of Insurance Shares.
[ad_2]