US Property & Casualty Outlook - pandemic to lead to a decline in premiums and pressure on overall profitability
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That was then: the US P&C industry delivered an ROE of 7.7% annualized in 2019, down two ticks yoy, but slightly above the prior 10-year average. Growth in direct premiums written (DPW) slowed modestly, but at 4.8% yoy was at the second highest rate in the last 15 years. Aggregate net income was up 3.1% yoy to USD 60.8 bn, adding to industry surplus which climbed nearly 14% yoy to USD 870.2 bn, boosted also by sizable unrealized capital gains. Now, the COVID-19 pandemic has turned the industry outlook upside down, with premiums forecast to decline in 2020 for the first time since the Global Financial Crisis. Although we expect commercial pricing momentum to strengthen further, declining exposure growth and premium give-backs, particularly in personal auto, are projected to push overall DPW down yoy. Commercial lines are also forecast to see loss pressure in the aggregate, whereas the personal lines combined ratio is expected to benefit from declining auto frequency over and above the premium rebates. Despite an overall projected underwriting gain for the year, significant pressure on the investment side is forecast to push the industry's full year ROE down to just 3%, the lowest since 2008, and industry capital is projected to contract.
- Before the coronavirus hit, the industry delivered a 2019 ROE of 7.7%, slightly above the prior 10-year average.
- Direct premiums written rose by a solid 4.8% yoy in 2019, though slightly lower than the prior year.
- Commercial lines pricing accelerated throughout 2019; we expect rate hardening to persist in 2020.
- The 2019 combined ratio adjusted for reserve developments was near break-even.
- Reserve releases in 2019 were roughly halved compared to the prior year.
- For 2020, we forecast a decline in premiums, and significant pressure on the investment side reducing overall profitability.
- The industry globally is suffering from a slow-moving cat in the shape of the coronavirus pandemic.
- Risks to our baseline scenario are geared to the downside, as loss estimates in a number of lines, including BI and workers' comp, could be significantly worse than currently projected.