Combined ratio represents the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and a ratio above 100 represents a loss. The industry in 2021 was barely profitable, with a combined ratio of 99.5.
Losses have been driven by significant deterioration in the personal auto line. Dale Porfilio, Triple-I’s chief insurance officer, said the 2022 net combined ratio for personal auto is forecast to be 105.2 – 3.8 points higher than 2021, driven primarily by significant deterioration in auto physical damage coverages.
Across most product lines, inflation, supply-chain disruptions, and geopolitical risk are expected to keep pushing insured losses and premium rates higher.
“We forecast 2022 P&C premium growth of 8.5 percent,” Porfilio said. “This is lower than the 9.2 percent growth in 2021, but still strong due to the hard market.”
Dr. Michel Léonard, Triple-I chief economist and data scientist, discussed key macroeconomic trends affecting the property/casualty industry results. He noted that insurance growth continues to be constrained by economic fundamentals, with replacement-cost increases well above pre-COVID levels and sub-par underlying growth.
Jason B. Kurtz, a principal and consulting actuary at Milliman, said another year of underwriting losses is likely for the commercial multi-peril line.
“More rate increases are needed to offset economic and social inflation loss pressures,” Kurtz said. “Social inflation” refers to the impact of litigation costs on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage.
Kurtz said the workers’ compensation line’s multi-year run of underwriting profits is expected to continue, although margins are likely to shrink further through 2024.
Dave Moore, president of Moore Actuarial Consulting, said the 2022 combined ratio for commercial auto is forecast to be 101.4 percent.
“We are forecasting underwriting losses for 2022 through 2024 due to prior-year development and the impact of inflation – both social inflation and economic inflation,” Moore said.