By Max Dorfman, Research Writer, Triple-I

The U.S. property/casualty insurance industry ended 2022 with a net combined ratio of 102.4 – representing an overall underwriting loss that would have been significantly worse if not for an underwriting profit in commercial lines that partially offset a loss in personal lines, according to the latest underwriting projections by actuaries at Triple-I and Milliman

Combined ratio is the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and one above 100 represents a loss. 

The report,  Insurance Economics and Underwriting Projections: A Forward View, presented at a members-only event on May 15, showed the divergence in performance between product lines was stark, with personal lines logging a combined ratio of 109.9 vs. 94.8 for commercial lines, the largest difference in at least 15 years. Looking ahead, the 2023 net combined ratio is forecast to be 101.5.

Dr. Michel Léonard, chief economist and data scientist at Triple-I, discussed key macroeconomic trends impacting the property/casualty industry results, including inflation, rising interest rates and overall P&C underlying growth. He noted that P&C underlying growth continues to be constrained by monetary policy.

“U.S. growth dropped over the last six months as rising interest rates depressed new housing starts, corporate capital investments and spending on vehicles,” Léonard said.

Léonard added that this trend is likely to continue, with the P&C industry contracting by -1.5 percent year to date, compared with U.S. gross domestic product (GDP), which grew at 1.3 percent. GDP is forecast to grow slightly above Fed expectations between 2023 and 2025, but to remain below the Fed’s long term growth expectation for the foreseeable future.

Looking at personal auto, Triple-I Chief Insurance Officer Dale Porfilio, said the 2022 net combined ratio came in at 112.2 — 10.7 points worse than 2021 and 19.7 points worse than 2020.

“The industry has not had this poor of a full year underwriting performance for personal auto in decades,” Porfilio said, adding, “Unless replacement cost trends begin to decrease materially – which is not currently forecast — it will take the industry into at least 2025 to restore personal auto results to underwriting profitability.”

For homeowners, Porfilio commented that the 2022 net combined ratio came in at an unprofitable 104.6. Porfilio added, “Hurricane Ian, the second-costliest insured loss after Hurricane Katrina, was a significant driver of underwriting losses for the industry.”

On the commercial side, Jason B. Kurtz, a principal and consulting actuary at Milliman, said commercial property, general liability, and workers compensation were bright spots for the industry, each logging underwriting gains in 2022. On the other hand, commercial auto and the commercial multi-peril lines were sources of weakness in 2022, with each seeing combined ratios of about 105. 

“Commercial auto performed surprisingly well in 2021, but this appears to have been short-lived, as underwriting losses driven in part by material prior-year adverse development returned in 2022,” Kurtz said. “We expect further rate increases will be needed to offset loss pressures affecting this line.”

Turning to cyber, Dave Moore, president of Moore Actuarial Consulting, said cyber insurance direct written premium grew 50 percent in 2022. He added, “The cumulative growth over the last seven years has been 620 percent.” The direct incurred loss & DCC ratios for the last eight years have averaged “49 percent with 2022 coming in slightly below average at 45 percent.”

Overall, the P&C industry underwriting projections are experiencing the benefits from improved efficiency to significantly reduce both operating and loss adjustment expense ratios, as evidenced by the industry expense ratios for 2022.

“Commercial lines achieved lower net combined ratios than personal lines in both 2021 and 2022, and we forecast that to continue through at least 2025,” Porfilio said.