➤ Inflationary pressures have moderated from prior levels but remain elevated compared to the pre-pandemic years.
➤ The US Federal Reserve's efforts to address inflation have not hit their targeted goals.
➤ The property and casualty industry remains in a hard market even as rates may have peaked.
The outlook for the domestic insurance industry remains complicated as stubbornly high inflation weighs on the sector, experts said during an April 30 S&P Global Market Intelligence webinar.
The inflationary cycle has largely been a curse for the industry, said Tim Zawacki, principal research analyst for S&P Global Market Intelligence. Though the inflation rate has come down from its peak, it remains significantly than where it was prior to COVID-19 pandemic, he said, pointing to the cost of used cars as a prime example.
"You can't separate from the inflationary pressures that the [property and casualty] industry has been seeing on loss costs, and that's labor costs and the amount that skilled labor commands in the marketplace," Zawacki said. "Those who work at body shops or rebuild homes, those kinds of individuals continue to command a much higher compensation than would have been true pre-pandemic."
The US Federal Reserve has attempted to cool inflation by raising interest rates to their highest levels in more than two decades, but their success has been limited, said Raghu Ramachandran, head of Insurance Asset Channel, S&P Dow Jones Indices. Both CPI and Personal Consumption Expenditure continue to come in above expectations, which is impacting claims costs and pushing premiums for P&C products up, Ramachandran added.
Access a replay of the webinar
The US P&C sector was socked by marked deterioration in personalized underwriting results following a spike in claims inflation that began in the later stages of the pandemic and has not fully abated, said John Iten, managing director and P&C insurance sector lead at S&P Global Ratings. The commercial lines industry posted underwriting profitability in 2023 with a combined ratio of around 95%, Iten said, but the question now is whether hard market has peaked, rather than if the industry as a whole is entering a soft market.
"We did see a slight deterioration in the combined ratio for commercialized insurers, and even though it was very strong it was still about a point weaker than the prior year," Iten said. "That does suggest that maybe rate increases are no longer in excess of loss costs trend."
The life sector has been relatively stable and ratings are unlikely to move up and down significantly in the next 18 to 24 months, said Carmi Margalit, managing director and life insurance sector lead at S&P Global Ratings.
"The few companies that we do have either on a positive or negative outlook on are related to company specific issues," Margalit said. "So their transactions are an idiosyncratic issue with that company and it's not emblematic of any kind of sector trend."
