The 2022 net combined ratio for the property/casualty insurance industry was 102.4, with underwriting losses for personal lines partially offset by underwriting gains for commercial lines. The divergence in performance was particularly stark, with personal lines logging a combined ratio of 109.9 vs. 94.8 for commercial lines, the largest difference in at least 15 years. Looking ahead, the 2023 net combined ratio is forecast to be 101.5 according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman.
The quarterly report, Insurance Economics and Underwriting Objections: A Forward View, was presented on May 15 at an exclusive members only virtual webinar.
Michel Léonard, PhD, CBE, Chief Economist and Data Scientist at Triple-I discussed key macroeconomic trends impacting the property/casualty industry results including inflation, rising interest rates and overall P&C underlying growth.
P&C underlying growth continues to be constrained by monetary policy with no relief in sight, contracting -1.5% YTD compared with U.S. Gross Domestic Product (GDP) at 1.3%. GDP is forecast to grow slightly above Fed expectations between 2023 and 2025, but to remain below the Fed’s long term growth expectation for the foreseeable future. “U.S. growth dropped over the last six months as rising interest rates depress new housing starts, corporate capital investments and spending on vehicles,” Léonard said.
Triple-I expects prospects for a U.S. recession by year-end 2023 to be high as Fed remains hawkish, putting its long-term growth expectation further out-of-reach. “While it is unlikely that the stronger-than expected April jobs performance will lead the Fed to aggressively accelerate the pace of current monetary tightening, it may, however, expand the duration of the current tightening cycle,” said Léonard, adding, “P&C replacement costs are up an average of 40% since the beginning of the pandemic, significantly above cumulative increases in overall inflation.”
Dale Porfilio, FCAS, MAAA, Chief Insurance Officer of Triple-I, discussed the overall P&C industry underwriting projections. “Commercial lines achieved lower net combined ratios than personal lines in both 2021 and 2022, and we forecast that to continue through at least 2025,” said Porfilio. “All product lines are benefiting from improved efficiency to significantly reduce both operating and loss adjustment expense ratios, as evidenced by the industry expense ratios for 2022.”
Looking at personal auto, Porfilio said that the 2022 net combined ratio came in at 112.2, 10.7 points worse than 2021 and 19.7 points worse than 2020. “The industry has not had this poor of a full year underwriting performance in decades,” he said, adding, “unless replacement cost trends begin to decrease materially – which is not currently forecast — it will take the industry into at least 2025 to restore personal auto results to underwriting profitability.”
For homeowners, Porfilio noted that the 2022 net combined ratio came in at an unprofitable 104.6. Porfilio added, “Hurricane Ian, the second-costliest insured loss after Hurricane Katrina, was a significant driver of underwriting losses for the industry.”
Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – a premier global consulting and actuarial firm – said that commercial property, general liability, and workers compensation were bright spots for the industry, each logging underwriting gains in 2022. On the other hand, commercial auto and the commercial multi-peril lines were sources of weakness in 2022, with each seeing combined ratios of about 105. “Commercial auto performed surprisingly well in 2021, but this appears to have been short-lived, as underwriting losses driven in part by material prior year adverse development returned in 2022. We expect further rate increases will be needed to offset loss pressures affecting this line.“
Turning to cyber, Dave Moore, FCAS, MAAA, President of Moore Actuarial Consulting said cyber insurance direct written premium grew 50% in 2022. He added, “the cumulative growth over the last seven years has been 620%.” The direct incurred loss & DCC ratios for the last eight years have averaged “49% with 2022 coming in slightly below average at 45%.”
Workers compensation is healthy and strong within the commercial line results. The shifting workplace and workforce, the impact of the pandemic, and the economic recovery affected volume and location of workers compensation risk, but not profitability. Referring to private carriers, Donna Glenn, Chief Actuary at the National Council on Compensation Insurance, noted that premium increased 11% in 2022, returning to near the pre-pandemic levels of 2019. “This marks the sixth consecutive year with a workers compensation net combined ratio under 90 and the ninth consecutive year of underwriting gains,” she said.
About Insurance Information Institute (Triple-I)
Founded in 1960, the Triple-I provides objective, fact-based information about insurance while also being a trusted source of unique, data-driven insights which inform and empower consumers. We want people to have the information they need to make educated decisions, manage risk, and appreciate the essential value of insurance. We have more than 60 insurance company members, including nine of the 10 largest writers of property/casualty insurance in the United States. Our focus is to create and to disseminate information; we neither lobby on behalf of the insurance industry nor do we sell insurance.