After four years of unprecedented underwriting profits ending in 2021, the property/casualty market is headed for a second consecutive year of underwriting losses, according to a newly released S&P Global Market Intelligence report. .
S&P’s “2023 US P&C Insurance Market Report” estimates a combined ratio of 100.8 for 2023. Although an improvement from the calendar year 2022 result of 102.6, it is more than 100 profit threshold, the report says.
“The bad first quarter of 2023 directly incurred losses in the ratios of home owners and private car businesses suggest a reversal in 2022, when the more favorable results of underwriting commercial lines more than personal lines losses,” explained Tim Zawacki, principal research analyst, S&P Global Market Intelligence (S&P GMI).
“We plan a narrower, but still significant, gap between personal and commercial lines results will remain in 2023 as we expect the benefits from several phases of the private car increase lead to an increase in loss ratios for that embattled line of business,” he said.
Fasting Truth: Personal vs. commercial
According to S&P GMI’s US P/C Insurance Market Report, in 2022, there will be a 15.5 point gap between a personal lines combined ratio of 109.9 and a commercial lines combined ratio of 94.4.
The last time there was a double-digit gap between personal and commercial lines combined ratios was in 2001, when commercial hit 121.8 and personal reached 110.9, S&P said.
S&P GMI projects “outsized growth” in personal lines direct premiums written at 12.7% and 8.5% in both 2023 and 2024, with personal lines combined ratios that growth to 105.3 in 2023 and 101.4 in 2024, both from 102.23 in 2024. The line growth number represents what S&P GMI believes will be the largest annual jump in private direct auto premiums in at least 25 years—and possibly as far back as the late 1970s or early 80s, the report says.
The increase is due to several factors including aggressive carrier pricing actions across the country, as well as the large rate catch-up that occurred in California recently (the state is considered the largest private market in car in the US).
“Corrective actions taken by private auto carriers, as well as residential and commercial property insurance businesses will translate into strong premium growth in 2023 even against a lackluster macroeconomic backdrop,” added Zawacki.
“We project double-digit growth in direct premiums written across the P/C business by 2023 which would mark the first time in 21 years for such a level of expansion. The 2002 That industry premium growth of 14.6%, not coincidentally, came as leading private auto insurers responded aggressively to poor underwriting results in 2000 and 2001.
As a result, underwriting results will continue to improve in the second half of 2023. In 2024, S&P projects that the industry will return to a combined ratio of less than 100, marking the return of profits to underwriting. The report predicts a combined ratio of 99.1 for 2024.
Property and auto insurers continue their aggressive tactics by reducing market penetration in some parts of the country known for losses during disasters.
Workers’ compensation continued to perform better than expected, the report said. The combined workforce ratio of 83.9 represents a decrease of almost 3.3 points from the 2021 result.
S&P GMI’s commercial lines market projects, the report shows, pointing to “decreasing but still positive underwriting margins over the course of our five-year outlook,” due to continued underwriting reviews and aggressive commercial vehicle pricing, benefits from significant commercial rate increases. property and restore the longer term means of business casualty.
The outlook for all years is subject to various risks and uncertainties related to the frequency and severity of natural disasters, the report said.
Loss of Profit on Property Casualty Underwriting
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