P/C Industry to Finish 2022 With Combined Ratio Over 100: S&P

For the first time since 2017, the calendar-year combined ratio for the property/casualty industry will eclipse 100 in 2022 due to inflation, according to S&P Global Market Intelligence.

“We expect that growth rates in the commercial lines will pull back from 2021’s torrid pace of 13.6%, but any retreat will be mitigated by upward pressure on personal lines premiums. The personal lines segment should see overall growth and increases in rates due to the negative impact of supply chain-induced inflation on claims costs,” wrote Tim Zawacki, lead insurance analyst. “Our outlook anticipates a return to a sub-100% combined ratio in 2023, but factors such as persistent inflation and the U.S. economy potentially slipping into recession create considerable uncertainty.”

S&P’s U.S. Property & Casualty Insurance Market Report projected an increase of 0.9 percentage points in 2022 for a combined ratio of 100.4 on a year-over-year basis.

The report cites the effects of COVID-19 to the global supply chain, especially to private passenger auto.

Inflation on vehicle repair and replacement costs in auto caused a combined ratio of nearly 101.5 in 2021 from 92.5 in 2020, when the line of business was responsible for keeping the overall P&C combined ratio below 100.

This year, auto will “push the overall combined ratio into the red,” Zawacki said.

Without results from private auto, the overall P/C combined ratio would be 3.2 points lower.

S&P said it looks to the homeowners line for better results due to rate hikes and growth in replacement-cost values. Also, some risk in hurricane-prone regions moved into state run residual markets.

After its best result since 2015 with a combined ratio of 96.1 in 2021, commercial lines are projected to record a 96.3 combined ratio in 2022, with growth in direct premiums written of more than 10.5%.