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P&C Market to Remain Unprofitable Until 2025

Poor personal lines underwriting performance is the key driver for deteriorating results, with a personal auto combined ratio forecast of 109.5 for 2023.
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p&c market to remain unprofitable until 2025

The overall property & casualty industry is forecast to finish 2023 with a net combined ratio at 102.2, nearly identical to the final 2022 result of 102.4, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman, which also said that the p&c industry will not post a ratio below 100 and return to profitability until 2025.

The projection provides little solace after underwriting results deteriorated across the board for big personal lines carriers in the first half of 2023, prompting more carrier pullbacks.

Poor personal lines underwriting performance is the key driver of results in 2022 and 2023, with personal auto projected to post a net combined ratio of 109.5 in 2023. Additionally, large catastrophe losses in the first half of 2023 dashed hopes of a market recovery after a difficult 2022.

The net combined ratio is the sum of two ratios, one calculated by dividing incurred losses plus loss adjustment expense (LAE) by earned premiums in a year, and the other by dividing all other expenses by either written or earned premiums, according to the Insurance Risk Management Institute.

A ratio below 100% indicates that the company is making an underwriting profit, while a ratio above 100% means that it is paying out more money in claims than it is receiving from premiums.

“Catastrophe losses in the first half of 2023 were the highest in over two decades, slightly higher than the record set in first half of 2021," said Dale Porfilio, chief insurance officer at Triple-I. “The good news is that the personal auto net combined ratio is beginning to show incremental improvement. Moreover, commercial lines continues its strong overall performance."

“We forecast net combined ratios to incrementally improve each year from 2023 to 2025, with the industry returning to a small underwriting profit in 2025," he added.

For homeowners, Porfilio noted that the 2023 net combined ratio forecast of 104.8 is nearly identical to the 2022 actual ratio, and said that homeowners incurred the majority of the first half of 2023 elevated catastrophes.

“A cumulative replacement cost increase of 55% from 2019-2022 contributes to our forecast of underwriting losses through 2025," he said. “Premium growth in 2023-2025 is forecast to be elevated primarily due to rate increases."

Will Jones is IA editor-in-chief.

Thursday, September 14, 2023
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