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%, suggests a new report from Triple-I.
According to the firm, GDP is forecast to grow slightly above the Fed’s expectations between 2023 and 2025, but is to remain below the long-term growth expectation for the foreseeable future.
Michel Léonard, PhD, CBE, Chief Economist and Data Scientist at Triple-I, said, “U.S. growth dropped over the last six months as rising interest rates depress new housing starts, corporate capital investments and spending on vehicles.
Triple-I expects prospects for a U.S. recession by year-end 2023 to be high as the Fed “remains hawkish”, putting its long-term growth expectation further out of reach.
Léonard continued, “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.
“P&C replacement costs are up an average of 40% since the beginning of the pandemic, significantly above cumulative increases in overall inflation.”
Discussing the overall P&C industry underwriting projections, Dale Porfilio, FCAS, MAAA, Chief Insurance Officer at Triple-I, said, “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.
“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.”
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.
Triple-I stated that the divergence in performance was “particularly stark”, with personal lines logging a combined ratio of 109.9 vs. 94.8 for commercial lines.
This marks the largest difference in at least 15 years, according to the firm.
On the topic of 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.
He added, “The industry has not had this poor of a full year underwriting performance in decades. 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, adding, “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, suggested that commercial property, general liability, and workers’ compensation were bright spots for the industry, each logging underwriting gains in 2022.
Meanwhile, 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,” Kurtz explained.
He concluded, “We expect further rate increases will be needed to offset loss pressures affecting this line.”
