P/C Underwriting Profitability to Worsen as Inflation, Hard Market Persist

The 2022 combined ratio for the property/casualty insurance industry is forecast to be 100.7, a worsening of 1.2 points relative to 2021, driven by significant deterioration in the personal auto line.

Loss pressures and a hard P/C market are expected to continue due to inflation, supply chain disruptions, and geopolitical risk, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman.

The quarterly report, Insurance Information Institute (Triple-I) /Milliman Insurance Economics and Underwriting Projections: A Forward View, was presented during an exclusive members only webinar.

Michel Leonard, chief economist and data scientist at Triple-I, discussed key macroeconomic trends impacting the property/casualty industry results including underlying growth and replacement costs.

Leonard noted insurance growth continues to be constrained by economic fundamentals, with replacement cost increases at multiples of pre-COVID levels and subpar underlying growth.

“P&C underlying growth of 0.35%, while more resilient than the economy’s -0.93%, are both down year-over-year and year to date,” Leonard said, noting that it is too early to determine whether improvements in used auto and construction materials prices are sustainable.

“We would like to see at least another quarter of improvements before fully factoring their impact into homeowners, commercial property, and auto insurance replacement costs,” Leonard said.

Dale Porfilio, chief insurance officer at Triple-I, discussed the overall P&C industry underwriting projections.

“We forecast 2022 premium growth of 8.5%, lower than the 9.2% growth in 2021, but still strong due to the economic recovery and a hard market,” Porfilio said. He added that while 2022 catastrophe losses were lower in the first half than in 2020-2021, they were higher than 2018-2019.

On personal auto, Porfilio said that the 2022 net combined ratio is forecast to be 105.2, 3.8 points higher than 2021, driven primarily by significant deterioration in auto physical damage coverages.

“For personal auto in total, quarterly direct loss ratios deteriorated rapidly from the pandemic low of 47.5% for Q2 2020 to an average of 72.8% for the most recent three quarters of Q3 2021 to Q1 2022. Recent deterioration has been driven by physical damage coverages, with an average direct loss ratio of 78.6% in the most recent three quarters being the worst in two decades,” he said.

Jason B. Kurtz, a principal and consulting actuary at Milliman, said that another year of underwriting losses are likely for the commercial multi-peril line.

“Underwriting losses are expected to continue as more rate increases are needed to offset economic and social inflation loss pressures,” Kurtz said. For the commercial property line, the industry is seeing strong premium growth and rate increases should help to alleviate some of the pressure from catastrophe losses, he added.

Looking at the workers’ compensation line, Kurtz noted that the line’s multi-year run of underwriting profits is expected to continue, although margins are expected to shrink further through 2024.

Dave Moore, president of Moore Actuarial Consulting, said the 2022 combined ratio for commercial auto is forecast to be 101.4.

“We are forecasting underwriting losses for 2022 through 2024 due to prior year development and the impact of inflation — both social inflation and economic inflation,” Moore said.