Inflation and catastrophes contributed to the underwriting loss suffered by the property & casualty insurance industry in 2022, according to a new report by the Insurance Information Institute (Triple-I) and Milliman.
The report, titled “Insurance Economics and Underwriting Objections: A Forward View,” revealed that the net combined ratio for the P&C insurance industry was 102.4 in 2022, with personal lines suffering underwriting losses partially offset by gains in commercial lines.
Presented at a virtual webinar for Triple-I members, it identified a significant difference in performance between personal and commercial lines, with a combined ratio of 109.9 for personal lines and 94.8 for commercial lines. This represents the largest difference between the two segments in at least 15 years.
Forecasts from the Triple-I/Milliman report placed the 2023 net combined ratio at 101.5, with Triple-I chief economist and data scientist Michel Léonard noting that P&C underlying growth continues to be constrained by monetary policy as it sees a contraction of 1.5% year-to-date compared to the US gross domestic product (GDP) growth of 1.3%
“US growth dropped over the last six months as rising interest rates depress new housing starts, corporate capital investments and spending on vehicles,” Léonard said, adding that there is a high likelihood of a US recession by the end of 2023.
“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,” he said further. “P&C replacement costs are up an average of 40% since the beginning of the pandemic, significantly above cumulative increases in overall inflation.”
Meanwhile, Triple-I chief insurance officer Dale Porfilio discussed overall P&C industry underwriting projections, stating that all product lines have been benefiting from improved efficiency to significantly reduce both operating and loss adjustment expense ratios, as evidenced by the industry expense ratios for 2022.
“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,” Porfilio said.
The net combined ratio for personal auto in 2022 was 112.2, according to Porfilio, representing a decline of 10.7 points compared to 2021 and 19.7 points compared to 2020.
“The industry has not had this poor of a full year underwriting performance in decades,” he added. “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’ insurance, the 2022 net combined ratio was an unprofitable 104.6, with Porfilio pointing to Hurricane Ian as a “significant driver of underwriting losses for the industry.”
On a more positive note, Jason B. Kurtz, a principal and consulting actuary at Milliman, highlighted that commercial property, general liability, and workers’ compensation lines performed well in 2022, each recording underwriting gains.
However, commercial auto and commercial multi-peril lines faced challenges, with both segments experiencing combined ratios of about 105, with Kurtz adding that further rate increases may be necessary to offset loss pressures affecting commercial auto lines.
The report also provided insights into the cyber insurance market from Dave Moore, president of Moore Actuarial Consulting.
According to Moore, the cyber insurance direct written premium grew by 50% in 2022, with a cumulative growth of 620% over the past seven years. Meanwhile, the direct incurred loss and DCC ratios for cyber insurance averaged 49% over the last eight years, with 2022 slightly below the average at 45%.
As for workers’ compensation, Donna Glenn, chief actuary at the National Council on Compensation Insurance, noted its health and strength within the commercial line results.
Despite the impact of the pandemic and shifting workplace dynamics, workers’ compensation remained profitable. As noted in the report, premiums increased by 11% in 2022 and returned to near 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,” Glenn said.
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