Losses resulting from severe convective storms seen this year are expected to drive the 2023 net combined ratio for the property/casualty industry to 103.8, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman.
The hard market is expected to continue through 2023, with net written premium growth forecast at 8.3 percent.
The quarterly report, “Insurance Economics and Underwriting Objections: A Forward View”, was presented on Nov. 2, during an exclusive members only virtual webinar.
Michel Léonard, chief economist and data scientist at Triple-I, discussed key macroeconomic trends impacting the property/casualty industry results including inflation, increasing interest rates and overall economic underlying growth.
“P/C growth has improved in 2023, growing 1.3 percent versus 2.1 percent for overall gross domestic product (GDP). While many hurdles could derail such improvements, P/C underlying economic growth is currently positioned to increase faster than overall GDP by 2.6 percent versus 1.7 percent in 2024 and by 4.5 percent versus 2 percent in 2025,” he explained.
Top risk scenarios for 2024 include geopolitics, weakening employment and gross domestic product (GDP) contraction.
“The Fed may also keep increasing rates into 2025, pushing down home and auto insurance underlying economic growth,” he added.
Replacement costs is another area of concern.
Between 2020 and 2023, replacement costs increased an average of 45 percent whereas inflation for the overall U.S. economy increased 15 percent within that same period, he noted.
“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.”
Normal inflation is considered to be 2 percent per year.
Dale Porfilio, chief insurance officer at Triple-I, discussed industry underwriting projections.
“We forecast personal lines to improve each year from 2023 through 2025, but still lag behind strong underwriting profitability in commercial lines,” he said.
Improvements are expected to result in “the overall P&C industry returning to a small underwriting profit in 2025,” he added.
With respect to personal auto, Porfilio forecast premium growth of 11 percent in 2023, as rate increases start to exceed loss trends. As a result, net combined ratio should improve incrementally to 110.5 from 112.2 in 2022.
“Costlier replacement parts and low inventories are contributing to current and future loss pressures,” he said, adding, “unless replacement cost begins to decrease materially – which is not currently forecast— we project personal auto to remain at an underwriting loss through 2025.”
2023 H1 catastrophe losses were elevated and approximately 70 percent of those losses were in the homeowners line, Porfilio said.
“For 2023, the net combined ratio is forecast at 110.9, 6.2 pointss worse than 2022,” he added.
Commercial property, general liability and workers compensation continued to be bright spots for the industry, said Jason B. Kurtz, a principal and consulting actuary at Milliman, a global consulting and actuarial firm.
For commercial property, the 2023 net combined ratio is forecast at 91.6, nearly identical to 2022, the Milliman principal noted.
“Hard market conditions continue into 2023, most notably in catastrophe-prone regions,” Kurtz said. “We expect premium growth to moderate through 2025.”
For commercial auto, underwriting losses continue, with 2023H1 direct incurred loss ratios at the highest in at least 15 years, he said.
“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.”
The 2023 net combined ratio forecast of 96.9 for general liability falls between 2021 and 2022 actual results. He also said that premium growth is forecast to moderate in 2023-2025 as a result of the recent improved underwriting performance and lower GDP growth expectations.
Kurtz noted that the 2023 net combined ratio forecast of 90.6 in workers compensation continues the string of underwriting profits.
“Favorable results are forecast to continue through 2025, with premium growth 2.7 percent for 2023 and 1.9 percent expected in 2024 and 2025,” he said.
Preliminary numbers for 2023 on workers compensation premium, payroll and underwriting profitability are good, according to Donna Glenn, chief actuary at the National Council on Compensation Insurance (NCCI).
She noted that premium increased 11 percent in 2022, returning to near the pre-pandemic levels of 2019.
Glenn also indicated that the 2023 combined ratio should be very similar to 2022, resulting in a full decade of WC calendar year combined ratios under 100.
“All in all, the results for the first half of 2023 are remarkably stable,” she said. “I want to be clear — we continue to be vigilant in monitoring results and trends.”