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'No room for forgiveness' on casualty pricing as loss costs rise: Greenberg

Evan Greenberg highlights North American financial lines pricing, up 0.2% in aggregate in Q4 2022 against loss cost trends that were up 5%, and workers’ comp pricing up 2.3% against a loss cost trend of 5.5%

Chubb chairman and chief executive says competition has driven down rates over a number of quarters and risked insurers ‘overshooting the mark’ on price adequacy in many casualty lines

Rate increases in many casualty classes must accelerate if pricing is to stay ahead of loss cost trends and remain adequate, Chubb chairman and chief executive, Evan Greenberg.

Highlighting professional liability and workers’ compensation, Greenberg said competition had driven down rates over a number of quarters and risked insurers “overshooting the mark” in terms of price adequacy.

“I don’t think there is a recognition among most that to maintain discipline you better keep pace with loss costs – and this can get away from you pretty quickly,” he said.

“We’re not in a benign inflation environment,” Greenberg added, referring to social inflation.

For example, North American financial lines pricing was up 0.2% in aggregate in the fourth quarter, whereas loss cost trends were up 5%, Greenberg said, while workers’ comp pricing was up 2.3% against a loss cost trend of 5.5%.

While pricing in the “majority” of casualty lines was currently adequate, there was “little room for forgiveness” he said. “Given casualty loss cost trends, rates in most classes need to rise at an accelerated pace.”

Greenberg was speaking to analysts as the insurance giant posted record full-year earnings in 2022, with operating income up 16% to $6.46bn.

Property/casualty (P&C) underwriting income rose 23% to $4.56bn, while the combined ratio improved 1.5 points to 87.6%.

Full-year written premiums grew 7.7% to $38.1bn.

Premiums in the North America business were up 9.7%, while in Overseas General they were up 3.2%, or 11.4% in constant dollars.

For the fourth quarter, Chubb reported core operating income rose 3% to $1.7bn, as record investment income offset an 11% decline in P&C underwriting income.

Operating income per share rose to $4.05 from $3.81 but missed analysts’ forecast of $4.26.

P&C underwriting income fell to $1.12bn, on the back of $400m of catastrophe losses, largely from Winter Storm Elliott, and crop losses. The segment’s combined ratio deteriorated 2.5 points to 88.0%. The current accident-year P&C combined ratio excluding catastrophe losses was 85.6% compared with 83.9% in the previous year.

Net written premiums in P&C grew 5.9% to $9.02bn, as strong growth in North America offset a 1.3% decline internationally, reflecting the strong US dollar. Oversees premiums were up 9.7% in constant dollars, however.

Investment income rose 25% to $1.05bn.

“We had a strong quarter which contributed to the best full-year financial performance in our company’s history,” Greenberg said.

“Pricing conditions in commercial P&C remain favourable, the vast majority of our portfolio is achieving good risk-adjusted returns, and we are staying on top of loss cost inflation.”

Greenberg said the prospects for this year were promising. “We are off to a strong start in the new year and are firing on all cylinders.

“While there’s certainly plenty of risk and uncertainty in the operating environment globally – economic and geopolitical, from what we know and can control, 2023 should be a good year in terms of growth and earnings,” he added.

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