Fitch: Hardening Commercial Lines Market to Continue Through 2023

This year will mark the fourth year of a hardening market for the commercial lines underwriting cycle, according to the latest US Commercial Lines Market Update released by Fitch Ratings.

The Council of Insurance Agents & Brokers’ (CIAB) commercial lines market survey indicates overall rates rose 8.8% in 1Q23, compared with 6.6% in 1Q22.

Underwriting performance for the commercial lines market was up nearly two percentage points in 2022 with a 95.8% combined ratio, marking the fifth consecutive year of a combined ratio under 100%.

Boosted by socio-economic uncertainty during the pandemic, rate momentum was pushed even more by high inflation. Weak loss experience and higher reinsurance rates led to a rebound in pricing momentum this year in both property and auto segments.

Property rates rose by 20% in 1Q23, according to CIAB, due to large increases in reinsurance costs, while commercial auto moved 8.3% higher compared with 5.9% in 1Q22, the report noted, adding that general liability and umbrella rates continue to move upward.

Following large increases in the previous two years, directors and officers (D&O) liability and cyber risk experienced a sudden flattening of rate changes.

According to Fitch’s analysis, workers’ compensation posted the best product segment underwriting profits, with an average combined ratio of 89% for the past five years.

“Strong premium growth in 2022 from exposure changes, falling claims frequency and highly favorable reserve experience bolstered recent performance” in workers’ comp, the report stated.

On the other side of the coin, the combined ratio for the commercial auto line worsened to 105 in 2022, up five points from 2021.

Even with higher commercial auto premium rate increases, claims severity tied to higher parts and repair costs and litigation exposures continue to challenge the line in 2023.

With an average hurricane season forecasted, catastrophe losses should run as expected, leading to a modest underwriting profit in 2023, according to the ratings agency, which projects a 97%-98% combined ratio for the commercial lines sector the year.

While the 10% growth in 2022 commercial lines net written premium (NWP) remained above historical norms, revenue expansion in 2023 will slow to 6%-7%, the agency added.