US property & casualty outlook - cat losses and low yields to sustain rate hardening momentum in commercial lines
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Better underwriting results should improve US P&C sector profitability, but low interest rates and a normalization of claims trends in motor will create headwinds. Adjusting for cat losses, reserves releases and lower yields, we estimate a 2020 profitability gap of around 6% (points of ROE). Market premium growth should recover robustly to 5.7% in 2021, supported by a stronger US economy and rate hardening in commercial lines. Higher cat losses and COVID-19 related claims costs will sustain the hard market for commercial insurance. However, investment results remain under pressure with expected yield of only 3.3% in 2021, after 3.0% in 2020 and 3.7% in 2019.
- US P&C ROE forecast to improve to 7% in 2021.
- That would narrow the sector profitability gap, estimated at 6% in 2020.
- We raise our premium growth forecast for 2021 to 5.7%. Stronger economic growth and rate hardening in commercial lines to support.
- Still, low investment yields will continue to curb sector profitability.