US P/C insurance maintains discipline in face of higher inflation: S&P

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S&P Global Ratings, a provider of credit risk insights, reports that as inflationary pressures rise, US property/casualty insurers navigate sector challenges while maintaining disciplined reserving practices.

In response to mounting inflationary pressures, US P/C insurers adapt by maintaining disciplined reserving practices, navigating sector-specific challenges with strategic planning.

S&P underscores the industry’s resilience, citing consistent net releases averaging $8.6 billion annually since 2006. While some segments may require periodic reinforcement, overall reserve releases remain stable, particularly in short-tail lines and workers’ compensation, providing a buffer against market uncertainties.

Over the past two decades, personal lines insurers have benefited from positive reserve development, incrementally improving their combined ratio by 1.3 percentage points.

Conversely, commercial lines encountered challenges, notably during 2001-2005, with adverse reserve development driving up the combined ratio by 8 percentage points annually. Adaptability to these fluctuations underscores the importance of agile strategies and robust risk management frameworks for long-term sustainability.

In 2023, $12 billion in favourable reserve development in workers’ compensation and short-tail lines offset adverse trends in other liability areas.

Despite efforts to adjust rates, persistent adverse trends in liability occurrence and commercial auto liability highlight challenges in achieving rate adequacy during evolving risk landscapes. Proactive risk mitigation and ongoing evaluation of reserve adequacy are essential to address these challenges and ensure financial health.

Looking ahead, the industry anticipates improvements in personal lines’ reserve development as rate adjustments take effect and personal auto insurers regain profitability. However, uncertainties remain, with emerging risks such as PFAS and microplastics posing additional challenges and emphasising the importance of maintaining vigilant reserve practices.

While workers’ compensation remains a significant source of reserve releases, adverse trends in other liability occurrence persist, necessitating continued reserve strengthening efforts and proactive risk management approaches.

Despite recent profitability concerns, the industry remains resilient, guided by insights into evolving market dynamics and the importance of maintaining robust reserve frameworks to navigate future uncertainties and ensure financial stability.

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