U.S. P&C Combined Ratio for 2023 Projected at 103.8%

Analysts at the Insurance Information Institute (Triple-I) and Milliman expect the U.S. property/casualty insurance industry to post a 103.8% net combined ratio for 2023, driven by the highest severe convective storm losses in decades.

The III and Milliman experts shared their findings during a recent webinar discussing their quarterly report, “Insurance Economics and Underwriting Objections: A Forward View.”

In terms of overall P&C underwriting projections, Dale Porfilio, FCAS, MAAA, III chief insurance officer at Triple-I, discussed the overall P&C industry underwriting projections. Personal lines continues to drag on the market’s performance.

“We forecast personal lines to improve each year from 2023 through 2025, but still lag behind strong underwriting profitability in commercial lines,” he said, adding that the improvement should still bring the market to a “small underwriting profit” in 2025.

For personal auto, premium growth of 11% in 2023 is expected, according to Porfilio. Rate increases have begun to exceed loss trends, slightly improving the line’s combined ratio to 110.5% from 112.2%.

“Costlier replacement parts and low inventories are contributing to current and future loss pressures,” he said. “Unless replacement cost begins to decrease materially—which is not currently forecast—we project personal auto to remain at an underwriting loss through 2025.”

The homeowners insurance sector, however, will worsen in 2023 based on the elevated catastrophe loss totals for the first half of the year. Porfilio estimated that 70% of the H1 losses impacted the homeowners line.

“For 2023, the net combined ratio is forecast at 110.9, 6.2 pts worse than 2022,” he said.

Offering an economic perspective on replacements costs, III’s chief economist and data scientist Michel Léonard, Ph.D., CBE, said between 2020 and 2023, P&C replacement costs increased an average of 45% while inflation for the overall U.S. economy increased 15% within that same period. Normal inflation is defined as 2% per year.

“Increases in P&C replacement costs should continue to slow down faster than overall inflation over the next three years,” he said. “However, it will take 10 years of normal inflation for insurance replacement costs to process pandemic-related increases.”

Despite the losses in personal lines, commercial property, general liability, and workers’ compensation should come in under 100% on combined ratio this year, according to Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman. Commercial auto remains “troubled,” he said.

The hard market for commercial property is likely to result in a 91.6% combined ratio, on level with 2022, Kurtz said.

“Hard market conditions continue into 2023, most notably in catastrophe-prone regions,” he explained. “We expect premium growth to moderate through 2025.”

For commercial auto, underwriting losses continue, with direct incurred loss ratios for the first half of 2023 at the highest level in at least 15 years.

“There will be a continued need for rate to improve the combined ratio results,” said Kurtz, adding, “We are forecasting the 2023 combined ratio at 106.7, 2024 at 103.4 and 2025 at 102.7. These combined ratios lead to a continued need for rate, and that should help drive premium growth going forward. Inflation and prior year adverse development continue to weigh on this line and continue to bear watching moving ahead.”

General liability should post a combined ratio of 96.9%, said Kurtz, who projected moderating premium growth between now and 2025 as underwriting performance improves.

Donna Glenn, the chief actuary at the National Council on Compensation Insurance (NCCI), chimed in on the workers’ compensation market, noting that premiums rose 11% in 2022 and rebounded to pre-pandemic levels. A combined ratio of around 90.6% would put the comp market at a full decade of calendar year combined ratios under 100, she said.

“All in all, the results for the first half of 2023 are remarkably stable,” she said, and added, “I want to be clear—we continue to be vigilant in monitoring results and trends.”

Article Published By: Zywave, Inc.