Tag Archives: Forecasts

Triple-I/Milliman: Property/Casualty Underwriting Profits to Continue in 2021

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.”

Triple-I and Milliman forecast: commercial and personal auto and workers comp

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.

To learn about Triple-I membership, visit iiimembership.org

Triple-I/Milliman Groundhog Day Report Projects Insurer Growth, Profits In 2021

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.”

To learn about Triple-I membership, visit iiimembership.org

JIF 2020 Crystal Ball

My first Triple-I Joint Industry Forum (JIF) did not disappoint.

Between panel discussions and conversations with thought leaders and decision makers from across the insurance industry,  I learned a lot and accumulated insights and leads that will feed this blog for some time to come.

At a high level, an informal poll during one session – “JIF 2020 Crystal Ball—What Does the Future Hold?” – asked attendees several questions to get a sense of where they see the greatest opportunities and threats for the coming year.  Asked where they thought innovation would have the greatest impact in 2020, 36 percent said claims, followed by 26 percent who said they believe product marketing would be most affected.

I suppose this isn’t very surprising, as claims and product marketing both touch customers very directly. Marketing makes the promises and, when it works well, claims keeps them.  These should be high-priority areas for companies that expect to remain in business and competitive.

When asked what they expected to affect their companies’ bottom lines the most, 47 percent of participants said natural disasters and 30 percent said litigation costs (highlighting the increased attention being paid to social inflation).

I was a bit surprised to see cyber didn’t rank higher – especially given the fact that it recently came out at the top of concerns cited in the 2020 Allianz Risk Barometer. Autonomous vehicles – for all the media attention they receive – was the top choice of no one in the room.

When asked which of the following natural perils – tornadoes, hail, hurricanes, wildfires, and floods – keeps participants up at night, someone piped up to ask, “Why don’t you have an ‘all of the above’ choice?”

Forced to choose, the group’s top nightmares were: floods, wildfires, and hurricanes, in that order.

Asked about global events and trends they expect to have an impact on insurers worldwide, “Protectionism and trade disputes” was the top answer by far, at 58 percent – far above the next-highest: 28 percent for Brexit.

When asked about their expectations (not necessarily their preferences) for the 2020 election results, more participants (54 percent) said they expect a continuation of the status quo, with a Republican White House and Senate and Democratic House of Representatives. Twenty-nine percent said they expect the Democrats to take the White House and the Senate and House to remain essentially unchanged.

I found these results a bit surprising, given the mid-term turnout that led the House to flip from a Republican to a Democrat majority. The dynamics don’t seem to have changed much since the mid-terms. If the Presidency doesn’t change parties, one might reasonably expect a change of balance in the Senate. If a Democrat wins the Oval Office, I would expect the dynamics that get him or her there would also result in the Senate changing hands.

While interesting, this is not at all a scientific study. What are your thoughts and expectations on these or other topics affecting insurance in 2020?

Active Wildfire Season Likely

Nearly 37 percent of the United States and more than 98 percent of the state of California is in some form of drought, according to the latest U.S. Drought Monitor.

Its weekly update shows that more than 44 percent of California is now in a state of exceptional drought, with little relief in sight.

The report says:

Continued dryness resulted in an expansion of Exceptional Drought (D4) in northwest California. Statewide snowpack remains at 5 percent as of April 6, 2015.”

Here’s the visual on that:

20150407_usdm_home

What  could this mean for wildfire season?

The April 1 Outlook issued by the National Interagency Fire Center warned that parts of California will likely see increased wildfire activity earlier than usual thanks to the effects of the long-term drought.

Here’s what the significant wildfire potential looks like by June and July:

extended_outlook

Meanwhile, the National Oceanic and Atmospheric Administration’s (NOAA) recently issued Spring Outlook calls for drought conditions to persist in California, Nevada and Oregon through June with the onset of the dry season in April.

In its Outlook, NOAA said:

If the drought persists as predicted in the Far West, it will likely result in an active wildfire season, continued stress on crops due to low reservoir levels, and an expansion of water conservation measures.”

I.I.I. facts and statistics on wildfires and insurance are available here.