The overall property/casualty industry is expected to finish 2023 with a net combined ratio of 102.2, according to a recent webinar by the Insurance Information Institute (Triple-I) and Milliman.
Triple-I and Milliman shared the results of their quarterly report, Insurance Economics and Underwriting Projections: A Forward View, and said poor personal lines underwriting performance has been the key driver, with the personal auto combined ratio forecast to come in at 109.5 in 2023.
Key macroeconomic trends impacting the industry results include inflation, rising interest rates and overall P&C underlying growth, said Michel Léonard, chief economist and data scientist at Triple-I.
P/C underlying growth may catch up on overall U.S. gross domestic product (GDP) growth going into 2024, he said.
This would be in line with P/C growth patterns lagging overall GDP and P/C growth benefiting from its “post-COVID growth bump,” Léonard said, adding that the U.S. GDP “will likely decrease on a quarterly basis in the second half of the year compared to the first half, but still avoiding a technical recession in 2023.”
P/C replacement costs are expected to increase slower than overall inflation, the Triple-I estimates.
“U.S. consumer price index (CPI) will likely stay in the mid-to-upper 3% range through the end of the year,” Léonard said. He noted that underlying growth for private passenger auto has resumed its pre-pandemic trend. “Increases in replacement costs continue to decelerate and have now returned to pre-COVID trends as supply chain backlogs and labor disruptions ended.”
Dale Porfilio, chief insurance officer of Triple-I, discussed the overall P/C industry underwriting projections.
“Catastrophe losses in the first half of 2023 were the highest in over two decades, slightly higher than the record set in the first half of 2021,” he said. “The good news is that the personal auto net combined ratio is beginning to show incremental improvement. Moreover, commercial lines continues its strong overall performance,” he said. For the P/C industry as a whole, hard market conditions continue with 2023 NWP growth forecast at 7.9%. “We forecast net combined ratios to incrementally improve each year from 2023 to 2025, with the industry returning to a small underwriting profit in 2025.”
For homeowners, Porfilio noted that the 2023 net combined ratio forecast of 104.8 is nearly identical to 2022.
Homeowners incurred the majority of the first half of 2023 elevated catastrophes, said Porfilio.
“A cumulative replacement cost increase of 55 percent from 2019-2022 contributes to our forecast of underwriting losses through 2025,” he added. “Premium growth in 2023-2025 is forecast to be elevated primarily due to rate increases.”
While commercial lines showed underwriting gains in 2022, personal lines demonstrated underwriting losses, said Jason B. Kurtz, a principal and consulting actuary at Milliman.
“Commercial auto, however, was one commercial line that did not perform well in 2022,” he said. “For commercial auto, 2022 saw a return to underwriting losses, as the industry logged a 105.4 net combined ratio, the highest since 2019. We forecast relatively strong commercial auto premium growth of 9% in 2023, 9% in 2024 and 7% in 2025. Underwriting losses have returned and there will be a continued need for rate to improve the combined ratio results.”
Workers compensation remains the bright spot among all major P&C product lines, said Kurtz, with strong underwriting profitability forecast to continue through 2025.
Workers compensation premium growth will be modest, he added, approximately 3% per year.
“Overall frequency continues its long-term negative trend as workplaces continue to get safer,” said Donna Glenn, chief actuary at NCCI. “Medical severity has remained moderate despite rising inflation, and wages and employment are above pre-pandemic levels. While severity was notably higher in 2022, it’s been moderate over the last few years. Together, these system dynamics result in a healthy and strong workers compensation system,” she said.
Glenn also revealed that the long tail for workers compensation claims has gotten progressively shorter over recent years.
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