Combined ratio for the property & casualty insurance is forecast to be 106%

The 2022 combined ratio for the property and casualty insurance industry is forecast to be 105.8%, a worsening of 6.3 points from 2021. Growth and replacement costs remain challenging well into 2023 and 2024 as geopolitical risks remain elevated– putting pressure on industry combined ratios, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman. 

Michel Léonard, PhD, CBE, Chief Economist and Data Scientist at Triple-I, discussed key macroeconomic trends impacting the P&C industry results including inflation, interest rates and the likelihood of a recession.

Insurer economic growth had generally been tracking below growth in the nation’s overall Gross Domestic Product (GDP) since the start of the pandemic in 2020. Triple-I, however, expects insurer underlying growth in 2023 to catch up to overall GDP growth, ending the year at around 3 to 3.5%, whereas the broader U.S. economy is forecast to grow at a rate of 3.2% this year, up from 2.6% percent in 2022.

P&C insurer replacement costs are projected to increase between 4.5% and 6.5% year-over-year in 2023. This is an improvement from 2022’s 8.1% and 2021’s 11.8% year-over-year increases, various P/C replacement costs increased upwards of 25% since 2020.

We are cautious about forecasting any reductions in inflation and replacement costs in 2023 because of ongoing international political tensions and their impact on global supply chains and commodity prices.

Michel Léonard, PhD, CBE, Chief Economist and Data Scientist at Triple-I

Triple-I expects 2023’s economic narrative to focus on inflation, interest rates and recession in Q1, gradually shifting to the timing of a recovery between Q2 and Q3, and a more neutral monetary policy in Q4, depending upon the Federal Reserve’s interest rate decisions.

Looking at personal auto, the 2022 net combined ratio is forecast at 111.8, 10.4 points worse than 2021 and 19.3 points worse than 2020.

We forecast premium growth of 8.4% in 2022 and 8.5% in 2023, primarily due to hard market conditions and exposure growth.

Dale Porfilio, FCAS, MAAA, Chief Insurance Officer of Triple-I

2022 Q3 had a direct loss ratio of 83.2%, the worst in over 20 years. Supply chain disruption, labor shortages, and costlier replacement parts all contributed to the current and future loss pressures. Elevated losses cause 2023-2024 to remain at an underwriting loss, while expected rate increases are fully earned.

Underwriting losses are expected to continue for the commercial multi-peril line.

The 2022 net combined ratio forecast is at 106.1, nearly identical to the 106.2 in 2021, insurers will need to consider rate increases to offset economic and social inflation loss pressures.

For the commercial property line, the industry is seeing strong premium growth and rate increases should help to alleviate some of the pressure from catastrophe losses.

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman

Premium growth remains strong at 16.5% in 2022, following 17.4% growth in 2021. Despite Hurricane Ian, we forecast a combined ratio of 97.4 in 2022 and expect underwriting profitability to continue into 2023 and 2024.

Donna Glenn, FCAS, MAAA, Chief Actuary at the National Council on Compensation Insurance (NCCI), noted that the workers’ compensation line of business has seen declines in rates and loss costs for several years, partially driven by frequency declines.

Despite these declines, calendar year results show the line to be very profitable, with many years of combined ratios well below 100, calendar year 2022 looks quite similar.

Donna Glenn, FCAS, MAAA, Chief Actuary at the National Council on Compensation Insurance

Glenn also discussed inflation and the industry’s concern that it could lead to rising medical costs. Glenn said, “while the observed year-over-year overall CPI change is+6.5%, NCCI’s estimated inflationary change for medical care is +3.6%.”

The price of medical services is only half the story – you also have to consider utilization – the number and mix of services needed to treat injuries.”

2022 combined ratio for commercial auto is forecast to be 106.5, nearly 8 points worse than 2021. He noted that 2022 Q3 had a direct loss ratio of 71.3%, the worst since 2019 Q4.

We are forecasting underwriting losses for 2023 and 2024 due to inflation, loss pressure and prior year adverse loss development. Premium growth is also expected to remain elevated due to hard market conditions.

Dave Moore, FCAS, MAAA, President of Moore Actuarial Consulting

General liability is worsening with the 2022 net combined ratio forecast at 103, nearly 6 points worse than 2021. “We forecast a small underwriting profit for 2023 and 2024, but inflation and geopolitical risk put pressure on these forecasts,” he said, adding, “premium growth from the hard market is forecast to slow in 2022 to 2024.”

Nataly Kramer   by Nataly Kramer