Revealed – what’s driving a P&C underwriting loss for 2023?

The P&C industry is projected to finish 2023 with a combined net ratio of 102.2, just slightly below the 2022 result of 102.4.

According to a new report from the Insurance Information Institute (Triple-I) and Milliman, this trend is largely due to poor underwriting performance in personal lines, driven in part by higher catastrophe losses.

“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, Triple-I’s chief insurance officer.

But even with significant losses, Porfilio said the personal auto net combined ratio is “beginning to show incremental improvement” as the 2023 forecast sits at 109.5.

He also pointed out that the 2023 forecast of 104.8 for homeowners is nearly identical to the actual 2022 result, adding that homeowners bore the brunt of the elevated catastrophe losses seen during the first half of the year.

As for commercial lines, Porfilio noted its “strong overall performance,” with the report forecasting commercial auto premium growth of 9% in 2023, 9% in 2024 and 7% in 2025.

Overall, the P&C industry is expected to see net combined rations that will “incrementally improve each year from 2023 to 2025, with the industry returning to a small underwriting profit in 2025,” Porfilio said.

Other factors contributing to the industry’s underwriting performance are inflation and rising interest rates, as noted by Triple-I chief economist and data scientist Michel Léonard.

According to Léonard, property/casualty underly growth is expected to align with overall GDP growth going into 2024, benefiting from its “post-COVID growth bump.”

Additionally, he said that P/C replacement costs are expected to increase slower than overall inflation and that the US CPI will likely maintain its mid-to-upper 3% range through the end of the year.

Underlying growth for private passenger auto has also gone back to its pre-pandemic trend, Léonard added, while replacement costs continue to decelerate as supply chain backlogs and labor disruptions come to an end.

On this note, Porfilio said that a cumulative replacement cost increase of 55% from 2019-2022 contributed to their forecast of underwriting losses through 2025.

However, premium growth from 2023 to 2025 is expected to be elevated primarily due to rate increases.

Jason B. Kurtz, a principal and consulting actuary at Milliman, additionally highlighted workers’ compensation as “the brightest spot among all major P&C product lines,” with strong underwriting profitability projected through 2025.

Even so, premium growth is expected to be modest at approximately 3% each year, he said.

“Overall frequency continues its long-term negative trend as workplaces continue to get safer,” added Donna Glenn, chief actuary at the National Council on Compensation Insurance (NCCI). “Medical severity has remained moderate despite rising inflation, and wages and employment are above pre-pandemic levels.”

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