The overall P&C industry is expected to finish the year with a net combined ratio of 102.2, almost identical to the 2022 result, with poor personal lines underwriting performance as the key driver in both years, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman.
Michel Léonard, PhD, CBE, Chief Economist and Data Scientist at Triple-I, outlined the key macroeconomic trends impacting the P&C industry results, including inflation, rising interest rates and overall P&C underlying growth.
Léonard said that P&C underlying growth may catch up on overall U.S. GDP growth going into 2024, adding that this would be in line with P/C growth patterns lagging overall GDP, and P/C growth benefiting from its ”post-COVID growth bump.”
He noted 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.”
Triple-I also anticipates P&C replacement costs to increase slower than overall inflation, with Léonard stating, “U.S. CPI will likely stay in the mid-to-upper 3% range through the end of the year.”
He went on to say 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,” he explained.
Discussing the overall P&C industry underwriting projections, Dale Porfilio, FCAS, MAAA, Chief Insurance Officer of Triple-I, said, “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.
“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.
“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.”
Meanwhile, for homeowners, Porfilio noted that the 2023 net combined ratio forecast of 104.8 is nearly identical to the 2022 actual.
“A cumulative replacement cost increase of 55% from 2019-2022 contributes to our forecast of underwriting losses through 2025. Premium growth in 2023-2025 is forecast to be elevated primarily due to rate increases,” he said.
Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman highlighted that commercial lines in total had underwriting gains in 2022, while personal lines had underwriting losses.
He said, “Commercial auto, however, was one commercial line that did not perform well in 2022. 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.”
Kurtz concluded, “Workers compensation is the brightest spot among all major P&C product lines, with strong underwriting profitability forecast to continue through 2025. Premium growth is expected to be modest, however, with approximately 3% growth each year.”
