Inflation, High CAT Losses to Lead to 2023 Underwriting Loss for P&C Industry, But Recession Likely Avoided This Year, New Triple-I/Milliman Report Shows
The overall P&C industry is forecast to finish 2023 with a net combined ratio at 102.2, nearly identical to the final 2022 result of 102.4. Poor personal lines underwriting performance is the key driver in both years, with personal auto forecast at 109.5 in 2023, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman.
The quarterly report, Insurance Economics and Underwriting Projections: A Forward View, was presented on August 3 at an exclusive members only virtual webinar.
Michel Léonard, PhD, CBE, Chief Economist and Data Scientist at Triple-I, discussed key macroeconomic trends impacting the property/casualty industry results including inflation, rising interest rates and overall P&C underlying growth.
P/C underlying growth may catch up on overall U.S. GDP growth going into 2024. This would be in line with P/C growth patterns lagging overall GDP, and P/C growth benefiting from its "post-COVID growth bump," Léonard said, adding that the U.S. GDP "will likely decrease on a quarterly basis in the second half of the year compared to the first half, but still avoiding a technical recession in 2023."
Triple-I expects P/C replacement costs to increase slower than overall inflation. "U.S. CPI will likely stay in the mid-to-upper 3% range through the end of the year," Léonard said. He noted that underlying growth for private passenger auto has resumed its pre-Pandemic trend. "Increases in replacement costs continue to decelerate and have now returned to pre-COVID trends as supply chain backlogs and labor disruptions ended."
Dale Porfilio, FCAS, MAAA, Chief Insurance Officer of Triple-I, discussed the overall P&C industry underwriting projections. "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," he said. "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," he said. For the P&C industry as a whole, hard market conditions continue with 2023 NWP growth forecast at 7.9%. "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."
For homeowners, Porfilio noted that the 2023 net combined ratio forecast of 104.8 is nearly identical to 2022 actual. He 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. Premium growth in 2023-2025 is forecast to be elevated primarily due to rate increases."
Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman ? a premier global consulting and actuarial firm ? said that commercial lines in total had underwriting gains in 2022, while personal lines had underwriting losses. "Commercial auto, however, was one commercial line that did not perform well in 2022," he said. "For commercial auto, 2022 saw a return to underwriting losses, as the industry logged a 105.4 net combined ratio, the highest since 2019. Kurtz said, "We forecast relatively strong commercial auto premium growth of 9% in 2023, 9% in 2024 and 7% in 2025. Underwriting losses have returned and there will be a continued need for rate to improve the combined ratio results."
Kurtz said, "Workers compensation is the brightest spot among all major P&C product lines, with strong underwriting profitability forecast to continue through 2025. Premium growth is expected to be modest, however, with approximately 3% growth each year."
Donna Glenn, FCAS, MAAA, Chief Actuary at the National Council on Compensation Insurance (NCCI), highlighted key factors that influenced the 2022 workers compensation results.
"Overall frequency continues its long-term negative trend as workplaces continue to get safer," said Glenn. "Medical severity has remained moderate despite rising inflation, and wages and employment are above pre-pandemic levels. While severity was notably higher in 2022, it's been moderate over the last few years. Together, these system dynamics result in a healthy and strong workers compensation system," she said.
Glenn also shared insights on NCCI's actuarial analysis to project NCCI's ultimate loss ratio and described how and why it can be much lower than carriers' results. She also revealed that the "long tail" line for workers compensation claims has gotten progressively shorter over recent years.
About Insurance Information Institute
With more than 50 insurance company members ? including regional, super-regional, national, and global carriers ? the Insurance Information Institute (Triple-I) is the #1 online source for insurance information in the U.S. The organization's website, blog and social media channels offer a wealth of data-driven research studies, white papers, videos, articles, infographics and other resources solely dedicated to explaining insurance and enhancing knowledge.
Unlike other sources, Triple-I's sole focus is creating and disseminating information to empower consumers. It neither lobbies nor sells insurance. Triple-I offers objective, fact-based information about insurance ? information that is rooted in economic and actuarial soundness. Triple-I is affiliated with The Institutes Risk and Insurance Knowledge Group.
About Milliman
Milliman is among the world's largest providers of actuarial and related products and services. The firm has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe. For further information, visit Milliman.
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