The 2022 property/casualty insurance industry saw a greater difference between the combined ratio of commercial lines at 94.8, while personal lines reached 109.9.
This is the largest difference in about 15 years, according to actuaries at the Insurance Information Institute (Triple-I) and Milliman.
The 2022 net combined ratio for the P/C insurance industry was 102.4, with underwriting losses for personal lines partially offset by underwriting gains for commercial lines. Looking ahead, the 2023 net combined ratio is expected to be 101.5.
The quarterly report, Insurance Economics and Underwriting Objections: A Forward View, was presented yesterday during an exclusive Triple-I members-only virtual webinar.
Michel Léonard, chief economist and data scientist at Triple-I, discusses key macroeconomic trends affecting P/C industry results including inflation, interest rate increases and overall P/C underlying growth.
The underlying growth of the P/C industry continues to be constrained by monetary policy with no relief in sight, contracting -1.5% YTD compared to US gross domestic product (GDP) of 1.3%, he said. GDP is projected to grow slightly more than the Fed expects between 2023 and 2025, Léonard added, but will remain below the Federal Reserve’s long-term growth expectations for the foreseeable future.
“US growth has slowed over the past six months as rising interest rates have dampened new housing starts, corporate capital investment and vehicle spending,” Léonard said.
The likelihood of a US recession by the end of 2023 remains high as the Fed remains hawkish, putting long-term growth expectations further out of reach, Triple-I reckons.
“While it is unlikely that the stronger-than-expected jobs performance in April will lead the Fed to aggressively accelerate the current pace of monetary tightening, it may, however, extend the duration of the current cycle to tighten,” said Léonard, adding, “P&C Replacement costs will rise by an average of 40% since the start of the pandemic, much higher than the increases in general inflation.
The P/C industry underwriting projection was broached by Dale Porfilio, chief insurance officer of Triple-I. While commercial lines’ net combined ratios are likely to remain good over the next couple of years, personal auto will need the same amount of time to recover from the poor results.
“Commercial lines achieved lower net combined ratios than personal lines in 2021 and 2022, and we predict that will continue until at least 2025,” said Porfilio. “All product lines benefit from improved efficiency to reduce both operational improvement cost ratios and losses, as shown in industry cost ratios for 2022.”
The 2022 net combined ratio for the personal car reached 112.2, 10.7 points worse than 2021 and 19.7 points worse than 2020, he said.
“The industry hasn’t had such a poor full-year underwriting performance in decades,” he said, adding, “unless replacement cost trends begin to decline materially — which they don’t now.” predicted – it will take the industry at least 2025 to restore personal car underwriting results to profitability.”
Homeowners remain unprofitable, said Porfilio, who noted that the 2022 net combined ratio reached 104.6. He added, “Hurricane Ian, the second costliest insured loss after Hurricane Katrina, was a significant driver of underwriting losses for the industry.”
Commercial property, general liability, and workers’ compensation are bright spots for the industry, said Jason B. Kurtz, a principal and consulting actuary at global consulting and actuarial firm Milliman. Each logged underwriting gains in 2022. On the other hand, commercial auto and commercial multi-peril lines are a source of weakness in 2022, with each seeing combined ratios of about 105, he said.
“Commercial auto performed very well in 2021, but this seems short-lived, as underwriting losses driven in part by last year’s poor growth returned in 2022. We expect more A rate increase is needed to offset the loss pressures affecting this line,” Kurtz said.
One bright spot, according to Dave Moore, president of Moore Actuarial Consulting, is that cyber insurance direct written premiums will grow 50% in 2022.
“The cumulative growth in the last seven years is 620%,” he said, adding that the direct losses and ratios of DCC in the last eight years averaged “49% by 2022 slightly below the average of 45%.”
Workers’ compensation continued to show strong commercial line results. The changing workplace and workforce, the impact of the pandemic, and the economic recovery have affected the amount and location of workers’ compensation risk, but not profitability. Speaking of private carriers, Donna Glenn, chief actuary of the National Council on Compensation Insurance, noted that the premium increased by 11% in 2022, returning to almost the pre-pandemic level of 2019.
“This marks the sixth consecutive year with a workers’ compensation net combined ratio below 90 and the ninth consecutive year of underwriting gains,” Glenn said.
Topics
Business Insurance in Commercial Lines
