According to the latest underwriting forecasts from the Insurance Information Institute (Triple I) and Milliman actuaries, the P&C industry net composite ratio is expected to be 103.9 in 2023, with commercial at 97.7 and personal lines at 109.9.
Losses from record levels of severe convective storms were the largest contributor to the overall negative impacts.
The actuaries added that the hard market continues and net written premium growth is forecast at 9% in 2023.
The quarterly report, “Insurance Economics and Underwriting Forecast: Looking Ahead,” was released on January 30th during a members-only virtual webinar.
Michelle Leonard, chief economist and data scientist at Triple Eye, said inflation, interest rates and overall underlying economic growth are the key macroeconomic trends that will impact the performance of the P&C insurance industry.
“Real gross domestic product (R-GDP) accelerated to 4.9% in the third quarter of 2023, but economists still expect year-over-year growth of 2.1%,” Leonard said, noting that with regards to GDP, “revised numbers for the third quarter did not disappoint, but attention remains on the fourth quarter.”
The Consumer Price Index (CPI) continued to slow to 3.1% as of November, but the CPI excluding food and energy was still up 4% year-on-year, he added.
“We forecast P&C underlying growth to increase 1.3% year-over-year in 2023 and Triple-I to increase 2.6% in 2024,” Leonard said. “This is below U.S. GDP growth in 2023 and slightly above U.S. GDP growth in 2024. P&C replacement costs are forecast to increase 1.1% year-over-year in 2023 and 2% in 2024.”
Regarding P&C industry underwriting forecasts, Triple-I Chief Insurance Officer Dale Porfirio said, “The bad news is that third-quarter 2023 homeowners, commercial auto and commercial multi-peril incurred loss ratios are above historical averages and above our expectations.”
The housing industry's tough financial situation is exacerbated by a forecast net headline ratio of 112.3 this year, which it said would be the worst since 2011.
Porfirio added that net premium income growth for 2023 is 12.4%, the highest in a decade, and reflects rate hikes to offset loss costs due to inflation.
“We expect personal auto and home insurance to improve in 2024 and 2025 but remain unprofitable,” he said.
Jason B. Kurtz, principal and consulting actuary at Milliman, a global consulting and actuarial firm, said commercial property and workers' compensation insurance continue to be profitable, but commercial multi-peril and commercial auto insurance continue to struggle.
“In commercial auto, underwriting losses continue and the 2023 net composite ratio is expected to be 110.2, the highest since 2017,” Kurtz said. “The third quarter 2023 incurred loss ratio will be the highest in more than 15 years, and 2023 net written premium growth is 6%, significantly lower than the past two years.”
“For commercial multi-peril insurance, the net composite ratio is projected to be 110.3 in 2023, the highest since 2011,” he added.
For workers' compensation, the net composite ratio for 2023 is 88.7, in line with the average of about 89 over the past five years, Kurtz said.
He said the insurer's net premium income is expected to grow 2% annually from 2023 to 2025, but growth will be moderate and the net overall ratio should remain strong.
Fee affordability and medical inflation are the biggest concerns along this line.
“Loss costs have declined for 10 consecutive years,” said Donna Glenn, FCAS, MAAA, chief actuary at the National Council of Property Casualty Insurance (NCCI).
She said pay increases have outweighed the decline in loss costs due to the strength of the labor market and overall economy.
As for rising health care costs, Glenn said that while costs are increasing, the rate of increase is slow and in the “2.5 to 3.5 percent range.”
To address stakeholder concerns, NCCI is developing a medical cost index to capture the impact of medical cost inflation on workers’ compensation claims costs on a quarterly basis.
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