Insurance industry decision makers and thought leaders gathered yesterday for the Triple-I Joint Industry Forum (JIF) in New York City to share insights on managing risk in the post-pandemic world.
The in-person, daylong program was conducted in accordance with New York City’s COVID-19 protocols. Topics ranged from climate and cyber risk and the impact of “runaway litigation” on insurer losses and policyholder premiums to the challenges and opportunities presented by “the Great Resignation” for acquiring and nurturing talent in the industry.
The panels featured speakers from across the insurance world, academia, and media. Watch this space next week for panel wrap-ups.
By Loretta Worters, Vice President, Media Relations, Triple-I
The property/casualty insurance industry will run at an estimated 101 combined ratio for 2021, slightly worse than what was projected three months ago, putting pressure on rates and profitability, according to the latest underwriting projections by Triple-I and Milliman actuaries.
The industry is projected to experience 7.7 percent net written premium growth in 2021, followed by 5.2 percent in 2022 and 5.5 percent in 2023, due to the economic recovery and hard market.
The quarterly report, Insurance Information Institute (Triple-I) / Milliman P/C Underwriting Projections: 2021-2023, was presented at an exclusive members only virtual webinar moderated by Triple-I CEO Sean Kevelighan.
Triple-I Chief Insurance Officer Dale Porfilio explained that the 2021 estimated combined ratio – a measure of insurance company underwriting profitability — worsened from prior quarterly analysis “primarily because actual third-quarter catastrophe losses were worse than expected, with Hurricane Ida being the most destructive event.“
The 2021 year-to-date catastrophes are now the worst since 2017, when Harvey, Irma, and Maria all struck the U.S., Porfilio said.
He added that “healthy premium growth is projected for 2021-2023, as a result of economic recovery and a hard market” – an extended period of increasing premiums and decreasing capacity. Porfilio noted, however, that “insureds will continue to face rate pressure from the uncertainty of the pandemic.”
On the personal auto side, Porfilio said personal auto experienced improving combined ratios from 2016 through 2020, with 2020 heavily influenced by the lower miles driven during the pandemic.
“With miles driven in 2021 back to 2019 levels, we expect combined ratios to also return to pre-pandemic levels,” he said. “The greater concern for the entire industry is the observed riskier driving behaviors, such as impaired driving, speeding, and failure to wear seatbelts, leading to more severe accidents and increased fatalities.”
Looking at the commercial side, Jason B. Kurtz, a principal and consulting actuary at Milliman – an independent risk-management, benefits, and technology firm – said the hard market persisted in the third quarter, particularly in commercial product lines.
For commercial multiple-peril insurers, Kurtz said, “We are currently estimating a 2021 combined ratio of 109 percent. This line got off to a difficult start in the first quarter due in part to the Texas freeze event, resulting in a historically high first quarter incurred loss ratio on a direct of reinsurance basis.”
Turning to workers compensation, Kurtz noted that underwriting profits will continue, although margins are shrinking. “The pandemic recession significantly impacted premium volumes, but we are finally seeing premium growth again with the economic recovery,” he said.
In commercial auto, underwriting losses are forecast to continue through 2023, said Dave Moore president of Moore Actuarial Consulting. “We believe social inflation is playing a role in these combined ratios remaining above 100 percent despite many successive years of steady rate increases,” he said. “We continue to observe a significant rebound in premium growth due to the economic recovery and the hard market driving rate increases.”
Moore added that Triple-I will be publishing research later in the month on social inflation, funded by a research grant from the Casualty Actuarial Society (CAS). “We estimate social inflation increased commercial auto liability claims expense by roughly $20 billion for accident years 2010 – 2019.”
Michel Léonard, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, discussed the economic drivers of insurance performance for 2021 and going into 2022. He noted that the insurance industry is expected to grow by 3.4 percent in 2021, 2.4 percent below U.S. real GDP growth of 5.8 percent.
“This aligns with historical trends whereby the insurance industry declines less than the overall economy going into downturns but lags national averages during recoveries,” he said, adding, “Going into Q4, as more 2021 data becomes available, the more cool-headed forecasts for overall U.S. growth and inflation have prevailed. While both remain higher than usual on a year-over-year basis, overall U.S. growth is still falling short of making up for the growth lost to the pandemic over the last two years.”
With the 2021 Atlantic hurricane season nearly over, it is on track to be an above-average season with a total of 21 named storms (trailing only 2020 and 2005 for the most named storms in a single season), according to Dr. Philip Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University.
Klotzbach, who is also a Triple-I Non-Resident Scholar, gave his updated projections for the 2021 hurricane season, which officially ends on November 30. He noted that the season had seven hurricanes and four major hurricanes. “The most significant hurricane of the 2021 season was Hurricane Ida, which resulted in nearly 100 fatalities and $65 billion in total damage for the United States,” Klotzbach said. “In addition to devastating storm surge and strong winds near where the storm made landfall along the central Louisiana coast, Ida brought catastrophic flooding to the mid-Atlantic states, highlighting the significant impacts that hurricanes can generate well inland.”
From financial economists’ exuberant growth forecasts early in the year to central bankers’ coining of the term “transitory” inflation to pushback against Federal Reserve “tapering”,credible economists have never diverged so widely in their economic outlooks as they have in 2021, says Dr. Michel Léonard, head of Triple-I’s Economics & Analytics department.
Léonard is author of Triple-I’s fourth-quarter insurance economic outlook report,Soft Landing, Headwinds and Rebound. The quarterly report is available to Triple-I members only at economics.iii.org and is a companion publication to Triple-I’s Insurance Economics Dashboard. Non-members interested in learning about membership can contact Deena Snell.
Triple-I’s analysis translates broad economic growth drivers into business line-specific terms. So, while the insurance industry is expected to show a 3.4 percent growth rate in 2021, Léonard says, it will underperform overall U.S. GDP growth of 5.8 percent because it is “constrained by its ties to industries with growth rates significantly below and inflation rates significantly above the U.S. rates overall.”
According to the report, concerns about “runaway inflation” subsided in the second half of 2021 as prices for most goods in the consumer supply index (CPI) trended lower and overall inflation peaked at 4 percent. However, for a basket of goods whose prices tend to affect insurance claims and losses – think automobiles and replacement parts, among others – inflation remained above 10 percent. This is due primarily to supply-chain and labor-force disruptions.
As a result, the Triple-I report sees the insurance industry’s combined ratio increasing (underwriting profitability falling) due to low underlying growth and high line-specific inflation. It also sees the industry’s 2021 investment returns outpacing 2020’s, despite headwinds.
By Loretta Worters, Vice President, Media Relations, Triple-I
Property/casualty insurers are projected to have less-than-stellar underwriting profits in 2021, according to a forecast released today by the Insurance Information Institute (Triple-I) and risk-management firm Milliman.
The forecast – presented in a members-only webinar,“Triple-I /Milliman Underwriting Projections: A Forward View,” moderated by Triple-I CEO Sean Kevelighan – projects a 2021 combined ratio of 99.6. Combined ratio is the percentage of each premium dollar an insurer spends on claims and expenses.
The industry ended 2020 profitably, with a combined ratio of 98.7. Combined ratios for 2022 and 2023 are projected to be 98.9 and 99.3, respectively.
Losses from atypical weather events in the first quarter – particularly, the Texas freeze – got the year off to a rough start, explained Dave Moore of Moore Actuarial Consulting.
Natural catastrophe losses at a decade high
“Insured losses from natural disasters worldwide hit a 10-year high of $42 billion in the first half of 2021, with the biggest loss related to extreme cold in the United States in February,” Moore said, citing Aon statistics. “Overall, catastrophe loss estimates are in the $15 billion to $20 billion range for the Texas freeze event, and the rest of the year doesn’t look promising for CAT losses overall. Extreme weather this spring brought multi-billion-dollar thunderstorm and hail losses, and the extreme drought in the West has helped fuel another severe wildfire season.”
Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – an independent risk-management, benefits, and technology firm – said the current hard insurance market will persist, particularly in lines that have been hit hard by social inflation. A hard market is defined as a period of increasing premiums and decreasing insurance capacity.
Premium growth for the industry is projected to hit 7 percent in 2021. Growth is expected to slow in 2022 and 2023 but will remain above 5 percent both years.
“Lines like commercial auto, commercial multiperil, and general liability will still struggle to get their combined ratios under 100,” he said. “With ransomware attacks on the rise and tightening capacity, cyber bears watching, and homeowners insurers will have another tough year in 2021, but we predict improvement for 2022 and 2023.”
Michel Léonard, PhD, CBE, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, took a preliminary look at property/casualty industry results for 2021 and trends for the rest of the year. He noted that insurance outperformed the overall economy in 2019 and 2020 but was not likely to do as well in 2021.
“Right now, economists seem to be shifting growth from 2022 to 2021. That’s not good for insurance because of our industry’s business cycles. Shifting this growth means we are not expected to outperform the wider economy in 2021– but we are in 2022. What’s best for our industry is growth increasing, not decreasing, from 2021 to 2022.”
Regarding wildfire season, Roy Wright, president and CEO of the Insurance Institute for Business & Home Safety (IBHS), noted that as the climate changes and the population expands into the wildland urban interface, wildfires are intersecting suburban life. Wildfire losses continue to mount year after year and make clear the need for communities to adapt, he said.
Commercial auto insurance has been hit harder by litigation trends than any other line of business, according to David Corum, vice president at the Insurance Research Council (IRC).
“We estimate broadly that social inflation increased commercial auto liability claims by more than $8 billion between 2010 and 2019,” Corum said. “We are also seeing evidence that social inflation is becoming a factor in personal auto claims.” He noted that a soon-to-be-released paper by the Triple-I, Moore Actuarial Consulting, and the Casualty Actuarial Society will address this topic more broadly.
Pat Sullivan, senior editor and conference co-chair at Risk Information Inc., explained that commercial auto insurers spent the last few years trying to price themselves into profitability with little success.
Sullivan noted that COVID-19 wasn’t great for growth: “Commercial auto direct written premiums rose about one percent in 2020, compared to 12 percent in 2019, 13 percent in 2018, and 9 percent in 2017. Commercial auto’s underlying claims issues haven’t gone away.”
COVID-19 and business interruption
The past 15 months have been extraordinary from a legal perspective on COVID-19 business interruption claims, according to Michael Menapace, partner, Wiggin and Dana LLP and Triple-I Non-Resident Scholar.
“To date, 80 percent of the judicial decisions have dismissed policyholders’ claims without regard to whether the presence of SARS-CoV-2 or the government shutdown orders were the cause of their losses, Menapace said. That dismissal rate goes up to 95 percent when the policies also include a virus exclusion.”
“There have been some outlier business interruption decisions in favor of policyholders and some less favorable jurisdictions for insurers that we are watching,” he said. “Insurers must also remain vigilant by pushing back against proposals by state legislatures or executive agencies that would change the terms of insurance contracts to provide coverage where none was intended and for which no premium was paid.”
Looking forward, Menapace said the trend of dismissals in the trial courts should continue.
“There has been only one appellate court decision concerning business interruption coverage,” he said. “But, over the next 12-18 months, the focus will start shifting to state and federal appellate courts, which will have the final say on many of these issues.”
Atlantic hurricane season
Dr Phil Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University and Triple-I Non-Resident Scholar, gave his updated projections for the 2021 hurricane season.
Klotzbach noted that 2021 is expected to have an above-normal Atlantic hurricane season, with 18 named storms, eight of which will become hurricanes. Of those eight, four will likely become major hurricanes (category 3, 4, or 5 with winds of a 111 mph or greater). That compares with the long-term average of about 14 named storms, seven hurricanes and three major hurricanes.
By Loretta Worters, Vice President, Media Relations, Triple-I
Property/casualty insurers are projected to continue to post slight underwriting profits in 2021, according to a forecast released today by the Insurance Information Institute (Triple-I) and Milliman.
The forecast projects a 2021 combined ratio of 99, virtually the same as last year. The forecast was revealed during an exclusive, members-only virtual webinar, “Triple-I /Milliman Underwriting Projections: A Look Ahead,” moderated by Triple-I CEO Sean Kevelighan. Early projections for 2022 and 2023 look similar. The combined ratio is the percentage of each premium dollar an insurer spends on claims and expenses.
Premiums are expected to surge 7.1 percent this year, according to the forecast, up from 2.5 percent in 2020, as the combination of an economic recovery and a hard market increase both exposures and rates. A hard market, also known as a seller’s market, occurs when insurance is expensive and in short supply. Premium growth is projected to slow in 2022 and 2023 but remain above 5 percent in both years.
2021 got off to a bumpy start for natural catastrophes. “The industry took a big hit with the Texas freeze in Q1, with overall cat loss estimates in the $15 billion range,” said James Lynch, FCAS, MAAA, senior vice president and chief actuary at the Triple-I. “Most of that was the Texas storm. Q1 losses that big are atypical.” He added that the drought in the West is a continued concern as wildfire season approaches.
Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman, an independent risk management, benefits, and technology firm, said that underwriting results would gradually improve starting next year. And as more people are vaccinated and back to work, the economy should keep humming. “Last year’s recession was unusual in that there really wasn’t anything wrong with the economy until COVID hit. So now, with COVID (hopefully) on the run, the American Rescue Plan well underway, and the possibility of another stimulus at some point later this year, growth should be strong.”
“We anticipate a jump in premium growth this year, thanks to the economic recovery and a hard market,” said Kurtz.
Dr Phil Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University and a Triple-I non-resident scholar, has already given his initial forecast for the 2021 Atlantic hurricane season. He noted at the time that 2021 is expected to have above-normal activity, with 17 named storms, eight of which will become hurricanes – and of those eight, four are predicted to become major hurricanes (Category 3, 4, or 5, with winds of at least 111 miles per hour). That compares with the long-term average of 14 named storms, seven hurricanes and three major hurricanes.
“There are a couple of reasons why we’re forecasting above-normal Atlantic hurricane activity,” said Dr. Klotzbach. “We do not anticipate El Niño conditions this summer and fall,” he said, explaining that El Niño occurs when there is warmer than normal waters in the central and eastern tropical Pacific.
“When those El Niño conditions occur, it tends to increase upper-level winds, so winds at 20,000-30,000 feet in the atmosphere tear apart hurricanes in the Caribbean and into the tropical Atlantic. We’ll have a lot more to say when we put out our 2021 hurricane projections on June 3,” Klotzbach stated.
Looking at the Directors & Officers (D&O) market, Dave Moore, FCAS, MAAA, of Moore Actuarial Consulting, LLC, said that security class actions continue to exert upward pressure on both the number and size of claims in the public company D&O market and are expected to continue. “Prior to 2017, there were less than 200 security class actions filed per year, on average. In the last four years, that annual average has doubled to around 400 security class actions. Last year frequency fell, which might have been due to the pandemic. Even so, 2020 activity is still well above average.”
Donna Glenn, FCAS, MAAA, chief actuary, National Council on Compensation Insurance (NCCI),provided a high-level overview of the latest workers compensation insurance industry results and critical data points that demonstrate the health and resiliency of the system.
“The pandemic has demonstrated that the U.S. workers compensation system is resilient and strong,” she said. “Despite experiencing a 10 percent drop in net written premium amidst the pandemic recession, NCCI reports a calendar year combined ratio of 87, indicating a sign of profitability for carriers. Workers compensation reserves remain robust, with the redundancy growing to $14 billion in 2020.”
Dr. Sam Madden, co-founder and chief scientist from Cambridge Mobile Telematics, a telematics and analytics provider for insurers, rideshares, and fleets, discussed exposure and risk trends in mobility from the onset of the COVID-19 pandemic. He noted that in early March 2020 there was a precipitous drop in driving – nearly 60 percent – as the pandemic hit and the country shut down.
“During the summer of 2020, people began driving more, but overall, miles [driven] still remained depressed. As restrictions loosened and more people became vaccinated, driving returned to near pre-pandemic levels,” he said.
However, while the number of miles driven dropped during the pandemic, speeding spiked 45 percent. “Reduced traffic meant that many drivers could speed, and they did!” Dr. Madden continued. “Speeding remained elevated throughout the pandemic, and remains somewhat elevated today, with levels about 10 percent higher on average than pre-pandemic.”
Dr. Michel Léonard, CBE, vice president and senior economist, Triple-I, noted that the most important issue right now in terms of economics and insurance is the wide range of Gross Domestic Product (GDP) and inflation forecasts.
“We’ve never seen GDP forecasts from the Fed and financial institutions ranging from 4 percent to as much as 10 percent. What we can be sure is that the economy has been recovering in Q1 and so far in Q2, but such discrepancies in major economic indicators should be cause for caution, especially as COVID-19 is still an issue here in the U.S. and abroad,” he said.
Amid such wider economic uncertainty, Dr. Léonard said, what may be more helpful for insurance practitioners “is to focus on the insurance sector’s own growth, which outperformed the wider economy by nearly 6 percent in 2020 and is well positioned to do so again in 2021. Another insight is the growing consensus around the upward direction of interest rates which should help lift up net income from last year’s minus 3.8 percent.”
Two narratives about how recovery from the COVID-19-driven economic downturn will play out are competing in the business press – the Federal Reserve’s and that of the financial markets.
Market economists typically forecast wider changes in quarter-over-quarter gross domestic product (GDP) than their counterparts at the Fed. But the current discrepancy is wider than it has been in decades. This is creating so much confusion in financial news that a recent edition of Squawk Box discussed the extent to which “markets seem reluctant to believe the Fed’s policy goals.”
The markets see recent GDP growth as closely aligned to stock market performance: a dramatic drop in the second quarter of 2020 and an equally dramatic recovery from third-quarter 2020 to third-quarter 2021.
The Fed sees GDP as driven by structural economic considerations that move only gradually from quarter to quarter. As a result, the Fed estimated a smaller drop in GDP for second-quarter 2020 and a slower recovery ever since.
Over the last year, the Fed view was proven right multiple times.
“Triple-I’s forecasts fall within the consensus central banks view, as represented by the Fed for the U.S. and the International Monetary Fund (IMF) for the large insurance markets we follow,” said Dr. Michel Léonard, Triple-I vice president and senior economist. He said the expectations gap comes down to three economic considerations:
Fiscal stimulus and GDP growth: Fed and market economists disagree about the extent of the relationship between fiscal stimulus and growth. When generating GDP forecasts, all economists assign a “multiplier” to quantify the impact of government spending on GDP growth. Market economists tend to assign larger multipliers than central bank economists. Given the historically high fiscal stimulus of the last 12 months, market economists expect historically high GDP growth.
Shifts in economic output: They also tend to weight quarterly data differently. Fed economists focus more heavily on quarter-to-quarter trends, and market economists on changes within quarters. The COVID-19 economy upended how certain activities are carried out and reduced the comprehensiveness of quarterly data. For market economists, this led to overestimating the decrease in activity in the second quarter of 2020 and now overestimating the increase in first and second quarter 2021.
Timing: The Fed and markets agree broadly about GDP growth but disagree on timing. Both expect a comparable amount of growth between now and 2023 but, for the reasons above, allocate it differently across 2021, 2022, and 2023. Market economists allocate most of the growth to 2021, while Fed economists spread it over the 2021-2023 period. This has led to the Fed forecasting higher growth in 2022 than some markets economists.
Losses from winter storms that swept through the southern United States are expected to top the agendas of property and casualty insurance companies as they report first-quarter earnings, according to S&P Global.
“Ten of the 20 largest P&C insurers are expected to record revenue decreases, while nine are expected to log lower [earnings per share] year over year,” S&P Global said, based on an analysis of sell-side forecasts.
During the first quarter, southern states also were pummeled by severe convective storms featuring destructive tornadoes, flooding, and hail.
As states work to recover from these events, they will barely have time to breathe before contending with another above-average hurricane season. The Colorado State University Tropical Meteorology Project team, led by Triple-I non-resident scholar Dr. Phil Klotzbach, predicts 17 named storms during the 2021 Atlantic hurricane season. Of those, the researchers expect eight to become hurricanes and four to reach major hurricane strength, with sustained winds of 111 miles per hour or greater.
Extreme weather and populations shifting into coastal and other disaster-prone areas are major drivers of increasing storm losses in the United States. These growing losses underscore the importance of families, communities, businesses, and policymakers adopting a resilience mindset that focuses on what Triple-I vice president and senior economist Michel Léonard calls “pre-emptive mitigation” and rapid recovery from natural disasters.
That mindset requires going well beyond the traditional emphasis on insurance as a risk-transfer mechanism toward insurers acting as risk-management partners to get out in front of perils to ensure swift recovery.
By Loretta Worters, Vice President, Media Relations, Triple-I
During an exclusive Groundhog Day webinar presented to Triple-I members by Triple-I and Milliman, experts talked about what the insurance industry can expect in 2021.
Auto Insurance Report editor Brian Sullivan looked at both personal and commercial auto insurance. “For the first nine months, private passenger auto liability written premium was down less than two percent, but losses incurred were down more than 14 percent with loss ratios likely to be in the mid-50s.”
On the commercial side, Sullivan noted that commercial auto trends aren’t as powerful as those for personal lines. “Things have gotten better in terms of losses, but not that much better; certainly, nothing like personal auto,” Sullivan said.
Jeff Eddinger, senior division executive at the National Council for Compensation Insurance (NCCI), gave an early look at 2020 results for workers compensation insurance. “The pandemic has landed the U.S. economy into a recession. Significant job losses combined with changes in wage and rate levels have put downward pressure on premiums. NCCI estimates that private carrier net premium written will be down about 8 percent for 2020.”
Eddinger noted that as the virus began to spread in 2020, so did the concern that COVID claims could overwhelm the system. “Fortunately, that has turned out not to be the case. At the same time, there has been a drop in non-COVID claims, due in part to more remote work and less work-related driving. So far, incurred losses have decreased about 8 percent, in line with the drop in total premium. As a result, the estimated calendar year combined ratio for 2020 is almost unchanged from 2019 at 86. This would be the seventh straight year of underwriting profit for workers compensation.”
The industry is financially strong but continues to face uncertainty, Eddinger warned. “The vaccine rollout has begun, but new cases of the virus in the U.S. have soared to record levels. In addition to COVID claims, industry leaders are concerned about regulatory activity related to presumptions, the economic downturn and the long-term impact of working from home,” Eddinger said.
By Loretta Worters, Vice President, Media Relations, Triple-I
A pandemic, civil unrest, and weather-related catastrophes impacted the U.S. property/casualty (P/C) insurance industry in 2020, but not to the extent that was originally feared.
Few predict a repeat of the events of 2020, yet new projections from the Insurance Information Institute (Triple-I) and Milliman envision strong premium growth for 2021 with an underwriting result comparable to last year.
Despite myriad challenges, U.S. auto, homeowners, and commercial insurers are projected to realize a modest 1.9 percent growth in net premiums written and to book a combined ratio of 98.9 through year-end 2020, according to Triple-I and Milliman. This year, net premiums written will increase 6.1 percent, and the combined ratio will improve slightly, to 98.5, the two organizations project. Net premiums written are premiums written after reinsurance transactions. The combined ratio is the percentage of each premium dollar a P/C insurer spends on claims and expenses.
“We think the year ended surprisingly well, given the difficult circumstances the industry found itself in,” said James Lynch, FCAS, senior vice president and chief actuary, Triple-I. “We project a slight underwriting profit in 2020, fairly similar to 2019. We project similar results over the next two years.”
The year-end 2020 projections, along with those for this year and next, were unveiled during a Triple-I members-only webinar on February 2, “Triple-I/Milliman Underwriting Projections 2021-2022: Groundhog Day Edition,” moderated by Triple-I CEO Sean Kevelighan.
P/C insurance industry premium growth will rebound in 2021, the Triple-I and Milliman projected, as the hard market in commercial lines will augment exposure growth from the economic recovery. Panelists also forecast continued underwriting profits through 2022, with projections for several major lines of business.
“Economists expect growth to improve this year and next, which will fuel growth in exposures in most lines,” said Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman, an independent risk management, benefits, and technology firm.
Kurtz noted, however, that recent signs of slowdown are “concerning – retail sales fell in December, adjusted for the season and new jobless claims remain stubbornly high. So that may delay growth, as might the spread of so-called variant coronaviruses, which the CDC is expecting will dominate the cases in the spring.”
During the webinar, Dr. Michel Léonard, CBE, vice president and senior economist, Triple-I, took a preliminary look at third-quarter 2020 P/C insurance industry financial results.
The U.S. P/C insurers turned in a profitable performance in 2020’s third quarter, even as the industry’s net income dropped 26 percent for the second quarter in a row, according to Dr. Léonard. “While it was below the 10-year average, it was overall stronger than expected given the structurally low-rate environment yields and equity market volatility.”
Léonard concluded: “Prudent asset management and sound underwriting practices ensured the continued financial stability of the industry, even as we faced a uniquely challenging year, delivering on our contribution to systemic financial stability and commitment to policyholders.”
The global pandemic and costly natural catastrophes will contribute to a projected 101.7 combined ratio for the U.S.’s property/casualty (P/C) insurers in 2020, higher than the 98.8 the industry posted last year, according to the latest Underwriting Projections: 2020-2022 report from Insurance Information Institute (Triple-I) and Milliman.
The combined ratio is the percentage of each premium dollar a P/C insurer spends on claims and expenses. An increase in the combined ratio means financial results are deteriorating, while a decrease means they are improving.
For 2020, insurers are projected to pay nearly $1.02 (101.7) in claims and expenses for every premium dollar they collected. In 2019, they paid about 99 cents (98.8) on every premium dollar in claims and expenses.
The latest report is somewhat rosier than prior projections. For 2020, P/C insurer annual premium growth is projected to be 1.5%, an improvement from the decline of 0.5% projected three months ago, the report noted.
“Our estimates of premium growth are tied pretty tightly to economic indicators. Estimates of 2020 nominal GDP, while still showing shrinkage, have improved. That, plus a more nuanced understanding of how insurers booked the personal auto givebacks, helped us revise our premium estimates,” said Jason B. Kurtz, FCAS, MAAA, Principal & Consulting Actuary, Milliman.
In addition, the latest report incorporates more information as to how the industry is performing financially year-to-date. Filed first-half results provide a good idea of how premium and insured loss trends are impacting results.
“We can compare loss ratios for this year against last year and prior years and, after a couple of quarters, we can fine-tune our projection,” Kurtz said. “And we know a lot more about catastrophe losses, which are usually the biggest wildcard, and the third quarter is when the hardest catastrophes generally hit.”
For most lines of business, the forecast changed little from three months ago. Premium forecasts for lines like general liability and commercial auto insurance were affected because of the economic forecast.
“In commercial auto, for example, we thought the increase in online shopping would affect exposures more than it appears to have done. But as to the underwriting result, we didn’t change things much. Rates are higher, as we expected, and those lines are still fighting social inflation,” said James Lynch, FCAS, MAAA, Senior Vice President and Chief Actuary, Triple-I.
The report forecasts U.S. P/C insurance industry premium growth of 5 to 6 percent for 2021-22, slightly lower than the prior forecast released by Triple-I and Milliman.
What to Watch for
There’s still a lot of uncertainty when it comes to the pandemic. “The industry continues to grapple with how big the impact will be,” said Lynch. “There’s more certainty than three months ago, but that still leaves a whole lot of uncertainty,” he said. “Our stance remains where it was – the net loss impact will be the equivalent of a major hurricane – but as industry veterans know, some major hurricanes hit harder than others.”
Also, the path the economy takes as a result of the pandemic matters, added Kurtz. “Gross domestic product (GDP) rose the fastest in U.S. history last quarter, but the resurgence of COVID cases could mean another lockdown – perhaps softer than what we saw in the spring, but any lockdown triggers a slowdown. So, we might see a double-dip recession, and that suppresses premium growth.” He noted that a K-shaped recovery would be good for some segments of the U.S. economy while not being good for others.
Another wild card: government and regulatory responses. Another Coronavirus Aid, Relief, and Economic Security (CARES) Act that puts money in the hands of individuals and businesses is likely to buoy the economy as it did in the spring, the report states. Liability protections for reopening businesses would be favorable for the industry. “Congress may deal with that in the lame duck session or next year, but we will see,” said Kurtz.
The quarterly report was presented on November 17 at an exclusive members only virtual webinar moderated by Sean Kevelighan, Chief Executive Officer, Triple-I.
“This webinar series is another example of how the Insurance Information Institute is modernizing and innovating,” Kevelighan said. “Under the leadership of our chief actuary, James Lynch, the Triple-I is now giving its members timely, data-driven, and unique insights on insurance industry underwriting projections.”