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A prolonged period of historically low interest rates, coupled with claims inflation, is eroding insurers’ profitability. For the majority of P&C insurers, return on equity is underwater; 51% of insurers in the Americas were trading below book value in 2021, according to the McKinsey report. (Credit: apghedia/Shutterstock) A prolonged period of historically low interest rates, coupled with claims inflation, is eroding insurers’ profitability. For the majority of P&C insurers, return on equity is underwater; 51% of insurers in the Americas were trading below book value in 2021, according to the McKinsey report. (Credit: apghedia/Shutterstock)

The property & casualty insurance industry, by multiple measures, is in robust health. Market conditions are firm across most lines, capital and surplus remain strong, underwriting leverage is low and companies are generally showing strong earnings growth. But there is a problem.

Even though market conditions are favorable now, with rates still rising in most lines, according to MarketScout, hard markets do not last forever. Eventually, the cycle will change, and insurers will have to go back to competing for premium. P&C insurers are sitting on about $1 trillion of capital, with $780 billion in premium, meaning their underwriting leverage is under 80%.

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