How Property-Liability Rate Hikes are Shaping the Insurance Industry

Causes of Property-Liability Rate Hikes

Higher average premiums from rate increases, historical rate hikes, strong returns, and improvements in terms and conditions are key causes of property-liability rate hikes. Additionally, increased claims from injuries such as overexertion and falls contribute to the need for higher premiums.

"Property-Liability earned premiums of $12.9 billion increased 10.9% in the first quarter of 2024 compared to the prior year quarter, primarily driven by higher average premiums from rate increases." --- (ALL, press release, 2024/05/01)

"is below trends on certain lines of business, such as property, it is above trend in others.To give more insight on property, North America retail and wholesale property saw rate increases drop below trend in the second quarter, but that's on the back of rate increases in excess of 25% in 2023 and cumulatively in excess of 150% since 2018. International property is about 100% higher." --- (AIG, earning call, 2024/Q2)

"Umbrella and auto led the way with double-digit rate increases. Renewal rate change in our property line moderated, driven by the National Property business, reflecting strong returns after several years of substantial compounding rate and improvements in terms and conditions." --- (TRV, earning call, 2024/Q2)

"Let's review the broad-based profit improvement on Slide 3. So revenues were $15.3 billion in the first quarter, reflecting a 10.9% increase in Property-Liability earned premium and that, of course, was primarily due to kick rate increases in both auto and homeowners insurance." --- (ALL, earning call, 2024/Q1)

"Most frequent causes of injury: Overexertion (29% of claims analyzed). Slips, trips and falls (23%)." --- (TRV, press release, 2024/08/05)

Economic Factors Influencing Rate Hikes

Inflation, interest rate volatility, and regulatory approvals are key economic factors driving property-liability rate hikes. Insurers are adjusting rates to maintain adequacy amid rising loss costs and competitive pressures, influenced by historical loss trends and market conditions.

"We continue to monitor the impact of inflation and other economic factors on rate adequacy and loss cost trends." --- (AIG, sec filing, 2024/Q2)

"In terms of the commercial P&C rate environment, overall conditions were quite favorable in both property and casualty, and price increases exceeded loss costs while rate decreases in financial lines slowed." --- (CB, earning call, 2024/Q1)

"As we think about the growth prospects going forward and interest rate volatility going forward, if interest rates were to come down, if equity market remains volatile, does that help you on the broader competitive environment given that some of your key competitors tend to guide as far as an ROE rather than an underwriting combined ratio." --- (PGR, earning call, 2024/Q2)

"Pricing adequacy depends on a number of factors, including the ability to obtain regulatory approval for rate changes, proper evaluation of underwriting risks, the ability to project future loss cost frequency and severity based on historical loss experience adjusted for known trends, the Company’s response to rate actions taken by competitors, its expense levels and expectations about regulatory and legal developments." --- (HIG, sec filing, 2024/Q1)

"Risk Factors – Regulation in the 2023 Annual Report. Impact of Changes in the Interest Rate E nvironment Certain key U.S. benchmark rates continued to rise in 2024 as markets reacted to heightened inflation measures, geopolitical risk, and the Board of Governors of the Federal Reserve System implementing multiple increases to short term interest rates." --- (AIG, sec filing, 2024/Q2)

Effects on Insurance Market Segments

Rate hikes are driving profitability in Personal Lines, with companies like HIG and TRV reporting improved earnings and strategic capacity deployment. PGR highlights distinct segmentation in auto insurance, while AIG benefits from underwriting quality despite increased competition. CB's diverse segments, including major accounts and commercial insurance, are also impacted.

"With pricing gains, enhanced risk segmentation and moderating loss trends, I expect Personal Lines to meaningfully contribute to core earnings as it returns to profitability in 2024 and reaches target margins in 2025." --- (HIG, earning call, 2024/Q1)

"As we intended, new business and policies enforced declined, reflecting our efforts to thoughtfully deploy capacity. To sum up for the Personal Insurance segment overall, we're pleased with our progress as we continue to deliver improved profitability." --- (TRV, earning call, 2024/Q2)

"The customers, segmentation and economics of these two auto insurance distribution channels are fundamentally different, which is why we've developed, deployed and optimized distinct personal auto products for each channel." --- (PGR, earning call, 2024/Q2)

"Although market competition within Personal Insurance has increased, we continue to benefit from the underwriting quality and portfolio diversity." --- (AIG, sec filing, 2024/Q1)

"This segment includes our North America Major Accounts and Specialty Insurance division (large corporate accounts and wholesale business), and the North America Commercial Insurance division (principally middle market, and small commercial accounts)." --- (CB, sec filing, 2024/Q1)

Strategic Responses by Insurance Companies

Insurance companies are strategically responding to property-liability rate hikes through business shifts, acquisitions, management changes, and targeted investments. AIG focuses on profitable growth and new business development, while Allstate leverages strategic acquisitions and market investments. Chubb's management changes aim to support future growth ambitions.

"Lexington Insurance, our Excess & Surplus platform, achieved over $1 billion of gross premiums written in the second quarter and had its strongest new business quarter since we strategically shifted the business in 2018. International Commercial Lines delivered 6% growth with expansion across all regions." --- (AIG, press release, 2024/07/31)

"And we bought it for the strategic opportunity to leverage our capabilities in lets called preferred auto and home insurance and that's turning out to be true." --- (ALL, earning call, 2024/Q1)

"All of the appointments are effective immediately. "These management changes and increased responsibilities recognize the size and complexity of our North America Insurance business, along with our ambitions for its future growth and development." --- (CB, press release, 2024/07/09)

"AIG | First Quarter 2024 Form 10-Q ITEM 2 | Business Segment Operations | General Insurance BUSINESS STRATEGY Profitable Growth: Build on our high-quality portfolio by focusing on targeted growth through continued underwriting discipline, improved retentions and new business development." --- (AIG, sec filing, 2024/Q1)

"So we're showing the government that not only are we entering the market, but we're actually making strategic investments in that market." --- (ALL, Investor Day, 2024/06/25)

Regulatory Environment and Impacts

Insurance companies like AIG, Allstate, and Progressive highlight the significant influence of regulatory environments on their operations. They emphasize compliance with diverse regulatory authorities and the need for adjustments in response to regulatory changes, which directly impact property-liability rate hikes.

"AIG | Second Quarter 2024 Form 10-Q ITEM 2 | Executive Summary REGULATORY, INDUSTRY AND ECONOMIC FACTORS Regulatory Environment Our operations around the world are subject to regulation by many different types of regulatory authorities, including insurance, securities, derivatives and investment advisory in the United States and abroad." --- (AIG, sec filing, 2024/Q2)

"And we are walking in regulated markets. So when a regulator comes and says that you need to change this, we do this exactly as you do and we feel your pain and we know what you're going for.So we are working with them in Level I and not from here." --- (ALL, event transcript, 2024/06/25)

"We believe cash flows will remain positive in the reasonably foreseeable future and do not expect we will have a need to raise capital to support our operations in that timeframe, although changes in market or regulatory conditions affecting the insurance industry, or other unforeseen events, may necessitate otherwise." --- (PGR, sec filing, 2024/Q2)

"AIG | First Quarter 2024 Form 10-Q ITEM 2 | Executive Summary REGULATORY, INDUSTRY AND ECONOMIC FACTORS Regulatory Environment Our operations around the world are subject to regulation by many different types of regulatory authorities, including insurance, securities, derivatives and investment advisory in the United States and abroad." --- (AIG, sec filing, 2024/Q1)

"The underwriting environment varies across countries and products, as does the degree of litigation activity, all of which affect such ratios." --- (AIG, sec filing, 2024/Q2)