Swiss Re expert on the outlook for P&C | Insurance business America
“We really expect underwriting performance to improve fairly quickly in 2024.”
Insurance News
By Ryan Smith
Since joining Swiss Re in 2006, industry veteran Monica Ningen (pictured above) has held a number of leadership roles and currently serves as CEO of property and casualty reinsurance for the US.
Ningen recently spoke to Insurance Business about the state of the P&C industry, how it is evolving to address issues like climate change and what the future holds in 2024.
IB: How is the U.S. property and casualty insurance sector doing right now? What opportunities and challenges does it face?
None: We expect P&C direct premiums written to already exceed $1 trillion this year, with personal vehicles accounting for a third of that. This comes after the second consecutive year of double-digit growth. So as we look ahead to the next decade, we expect the industry to grow slightly faster than the economy, driven by property and liability premiums – which have also historically grown faster than GDP.
Given this, every business area will face headwinds and tailwinds. The primary driver of property and casualty insurance premiums is overall economic growth and wealth creation. When we think about potential headwinds for the industry and industry growth, it’s really the slowdown in labor markets and the impact on GDP. Tailwinds include a possible reacceleration in inflation, which will boost nominal growth but could hurt profitability.
IB: Swiss Re has said that the sector will have good momentum until 2024. What causes this dynamic?
None: This is due to three things: improvements in personal insurance, discipline in commercial insurance, and higher interest rates, which will contribute to higher profitability for U.S. property and casualty insurers in 2024. If we break this down, a recovery in retail underwriting performance is the main driver of this momentum. The last two years have been really difficult for the segment due to rate changes for private cars and homeowners [insurance] lagged behind the sharp rise in claims costs.
However, what we have seen in recent quarters is that companies have achieved a much-needed increase in the primary interest rate and that this effect is now being felt on their balance sheets and reflected in their improved results. This began to become apparent in the second half of 2023. So while premium growth has accelerated, claims inflation for things like cars, repairs and construction costs has also slowed. So we really expect underwriting performance to improve fairly quickly in 2024, barring any major catastrophic events in retail banking.
Commercial connections have been more profitable than private connections in recent years. The drivers of relative outperformance were actually an earlier start to interest rate hikes and a lower risk of damage to the type of goods that experienced the highest inflation. These things are fading, but the industry is disciplined in terms of capacity, pricing and terms and conditions. We therefore assume that the commercial divisions will maintain their high profitability in 2024.
A risk to this lies in continued upward revisions to loss estimates, particularly for commercial motor vehicle and general liability risks. And this is actually the result of persistent economic and social inflationary factors. But so far, if we look at the data through the end of 2023, these negative developments have actually been offset by the release of reserves and other lines, particularly in workers’ compensation, which has performed quite well.
Finally, higher interest rates increase operational profitability. On average, every 100 basis point improvement in a portfolio results in a 250 basis point improvement in return on equity. Therefore, we truly expect market returns to remain above maturing portfolio returns through 2024, contributing to further percentage improvement in industry ROA.
IB: Property insurance costs are skyrocketing – especially in disaster-prone states like Florida and California. What’s the answer? And how does the industry strike a balance between affordability for policyholders and profitability?
None: This is an interesting topic and an important topic. We therefore initially assume that insurability will remain largely intact – that is, the insurance will be available at a price appropriate to the risk. This means that insurance companies must be able to calculate the actuarially sound rate…
In addition to reduction and mitigation measures, investments must also be made in adapting to climate change. This will help ensure high-risk areas remain insurable at affordable prices. Therefore, in addition to investing in protective measures, efforts should be made together with the government to steer development away from high-risk areas.
A few statistics I like to use: If you think about the population in the landfall area of Hurricane Ian, it has increased 620% since 1970, compared to a 65% population growth in the U.S. as a whole. Looking at the U.S. as a whole, built-up area in flood plains increased by over 30% between 2003 and 2023, compared to just 23% nationwide. So we are clearly seeing changes where people live. We are seeing population changes in some of the most vulnerable areas.
From Swiss Re’s perspective, we are working with primary companies to achieve greater visibility into risks and enable more efficient claims processing, which will also help make insurance more affordable. And we know that long-term insurability is ultimately in the interest of all market participants. Social resilience truly requires the commitment of everyone.
IB: What role, if any, should the government play in ensuring that property remains insurable and insurance remains affordable?
None: Both the public and private sectors must work together to ensure we live in a resilient community and withstand the threats of climate change and natural disasters.
There is no party or entity that can solve this problem alone. When we talk about the role of government, we believe the government will have the greatest impact by focusing on mitigation or resilience measures. These are things like supporting stricter building codes, restoring shorelines to protect against storms, resilient infrastructure, and things like grant programs or tax incentives for consumer protections.
Additionally, the government should support provisions that limit things like uncontrolled litigation practices and ensure transparency in litigation funding. So these are really important roles that government has to play. And, you know, government plays a really important role in risks that are neither random nor accidental, like terrorism.
IB: Finally, what’s going on in the industry that really excites you – or that you think should get more attention?
None: I think there are a few things. One of them that I highlight is the importance of talent overall in the industry.
Talent is an issue that I think is really important for the industry to continue to thrive. We really need to think about how we as an industry can retain and attract the best talent. We do a great job of selling the value of our products, but perhaps we do an even better job of communicating how rewarding a career in the industry is.
We know that Generation Z employees, the youngest workforce, value companies that make a difference. This fits perfectly with our industry’s goal of reducing financial uncertainty and helping people cope with accidental losses. The insurance industry offers peace of mind and we can make a big difference in a community after a major event. In my opinion, this is a great opportunity for us to position ourselves as an industry and attract talent.
…When I think about Swiss Re, talent is actually one of the things that excites me the most. The range of talent we have at Swiss Re is pretty exciting. Our team shows real commitment to our customers. And over the past year, we have made adjustments to our operations that significantly improve our ability to realize that potential. As a result, I believe we are even better equipped to provide exceptional service to our clients and broker partners, with whom we often have long-standing relationships.
The talent base that I am so excited about, coupled with our strong capital base, makes me really excited about the way we are uniquely positioned in the industry to partner with our customers.
And secondly, I would be remiss if I didn’t mention the technology. It is the theme that is pervasive in so many discussions we have both inside and outside Swiss Re, and I think there are some great opportunities out there – we need to be aware of the risks.
We really evaluate topics like Gen AI from many different angles – productivity and use cases where we can gain insights from large amounts of unstructured data. We have seen technology impact the industry through automation in the past – this is sure to continue. But we see AI driving value beyond automation expansion. It is not a substitute for human judgment. It is truly a game changer for man. And I think AI will become more and more integrated into our work. It is also quite effective as an ally to increase productivity, allowing employees to focus on more creative tasks.
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2024-04-04 15:23:36
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