Michel Léonard, PhD, CBE, Chief Economist and Data Scientist, and Head of Economics and Analytics at Triple-I, discussed key macroeconomic trends impacting P&C insurance industry results .
Leonard noted that the performance of the US P&C industry continues to be constrained by historically high inflation which is impacting replacement costs.
“Insurance industry performance continues to be severely constrained by macro fundamentals. Average P&C line replacement costs are 16.3%, nearly double the average US CPI of 8, 5%,” he said, noting that while the Federal Reserve expects US inflation to decelerate. to 4.3% by the end of the year, “Triple-I expects the transition to take longer.”
Dale PorfilioFCAS, MAAA, Director of Insurance, Triple-I, noted that 2021 saw the worst full-year catastrophe losses since 2017 across all P&C product lines, although fourth-quarter actuals were significantly below previous expectations.
“The healthy premium growth seen in 2021 is expected to continue into 2024 due to the tough market,” Porfilio said, adding that “the 2021 net expense ratio of 27.0 points was the lowest in more than a decade due to premiums growing at a faster rate than expenses.” For the P&C insurance industry as a whole, he said he expects loss pressures to continue due to inflation and supply chain disruption.
On the personal auto side, quarterly loss and claims expense ratios have deteriorated rapidly since the pandemic-induced low in the second quarter of 2020 and are now well above the pre-pandemic experience in 2019 Porfilio said the 2021 combined ratio jumped to 101.4, the worst since 2017 and 8.9 points lower than in 2020.
“While miles driven have largely returned to 2019 levels, riskier driving behaviors have led to higher insured losses and fatality rates,” Porfilio added.
On the business side, Jason B. KurtzFCAS, MAAA, principal actuary and consultant at Milliman – an independent risk management, benefits and technology firm – said the 2021 Commercial Multi-Peril (CMP) combined ratio improved by 3.6 points compared to 2020, mainly due to strong net income premium growth (6.3% year-on-year) thanks to the economic recovery and a difficult market.
“Despite the improvement over 2020, the CMP line still suffered an underwriting loss in 2021 and we expect underwriting results in 2022-24 to continue to be impacted by inflation and CAT loss pressures” , Kurtz said.
Regarding the workers’ compensation line, Kurtz noted that underwriting profits are continuing, although margins have declined in 2021 and are expected to continue to decline through 2024.
“The workers’ compensation line has had seven straight years of underwriting profitability, a remarkable turnaround after eight straight years of underwriting losses,” he said. “It’s no surprise that rate increases have been hard to come by. Coupled with low unemployment, these forces will limit premium growth for the foreseeable future.”
On the commercial automotive side, the 2021 combined ratio improved by 3.0 points compared to 2020 due to less adverse development on prior accident years and a reduction of two points in the charges, according to David MooreFCAS, MAAA from Moore Actuarial Consulting.
“The 2021 combined ratio fell below 100% for the first time since 2010 and we have the lowest expense ratio in over a decade,” Moore said. “Watch the pressure from the social inflation loss and the unfavorable development of the losses from the previous year in 2022-2024.”
About the Insurance Information Institute (Triple-I)
Founded in 1960, Triple-I provides unbiased, fact-based insurance information while being a trusted source of unique, data-driven information that informs and empowers consumers. Triple-I wants people to have the information they need to make informed decisions, manage risk and appreciate the essential value of insurance. Triple-I has more than 60 member insurance companies, including seven of the top 10 P&C insurers in United States. The purpose of the organization is to create and disseminate information; Triple-I does not lobby on behalf of the insurance industry or sell insurance. Triple-I is an affiliate of The Institutes.
Milliman is one of the world’s largest providers of actuarial and related products and services. The firm has consulting practices in the areas of health, property and casualty insurance, life insurance and financial services, as well as employee benefits. Founded in 1947, Milliman is an independent company with offices in major cities around the world. For more information visit milliman.
SOURCE Insurance Information Institute