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2023 P&C Combined Ratio Forecasted to Deteriorate to 103.8

The projection is worse than the 102.2 combined ratio predicted earlier this year, according to projections by the Insurance Information Institute and Milliman.
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2023 p&c combined ratio forecasted to deteriorate to 103.8

The 2023 net combined ratio for the property & casualty industry is forecast to be 103.8, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman.

The projection is worse than the 102.2 combined ratio predicted earlier this year, which is, in part, due to severe convective storm losses being the highest in decades, the report said. Also, hard markets continue with 2023 net written premium growth forecast at 8.3%.

The projections were announced in a quarterly report, “Insurance Economics and Underwriting Objections: A Forward View," and the findings were presented in a webinar. Michel Léonard, chief economist and data scientist at Triple-I, discussed key macroeconomic trends impacting the p&c industry results, including inflation, increasing interest rates and overall economic underlying growth.

He identified the top risk scenarios for 2024 as 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 said.

Another area of concern, Léonard said, is p&c replacement costs. Between 2020 and 2023, replacement costs increased an average of 45%, while inflation for the overall U.S. economy increased 15% within that same period.

“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."

Meanwhile, Dale Porfilio, chief insurance officer at Triple-I, discussed the overall p&c 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. He also noted that the improvements are expected to result in “the overall p&c industry returning to a small underwriting profit in 2025."

In personal auto, Porfilio forecasts premium growth of 11% in 2023 as rate increases start to exceed loss trends, allowing the 2023 net combined ratio to 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."

For homeowners, Porfilio noted that catastrophe losses in the first half of 2023 were elevated and that approximately 70% of those losses were in the homeowners line. “For 2023, the net combined ratio is forecast at 110.9, 6.2 pts worse than 2022."

Lastly, Jason B. Kurtz, a principal and consulting actuary at Milliman, said that commercial property, general liability, and workers compensation continued to be bright spots for the industry, while commercial auto continues to be troubled.

For commercial property, the 2023 net combined ratio is forecast at 91.6, nearly identical to 2022. “Hard market conditions continue into 2023, most notably in catastrophe-prone regions," Kurtz said. “We expect premium growth to moderate through 2025."

But for commercial auto, underwriting losses continue. Direct incurred loss ratios in the first half of 2023 were at the highest in at least 15 years. “There will be a continued need for rate to improve the combined ratio results," Kurtz said. “We are forecasting the 2023 combined ratio at 106.7, 2024 at 103.4 and 2025 at 102.7."

However, Kurtz noted that the general liability 2023 net combined ratio forecast of 96.9 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.

Turning to workers comp, Kurtz noted that the 2023 net combined ratio forecast of 90.6 continues the string of underwriting profits. “Favorable results are forecast to continue through 2025, with premium growth 2.7% for 2023, 1.9% for 2024 and 1.9% for 2025," he said. 

Will Jonesis IA editor-in-chief. 

Wednesday, November 29, 2023
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