The U.S. commercial lines insurance segments are being challenged by slower revenue growth, inflation-based claim uncertainty and less favorable loss reserve experience, Fitch Ratings says. We project the sector will see a combined ratio of 97%–98% for 2023 vs. 96% in 2022. While commercial lines reported statutory underwriting profits in four of the last five years, net written premium (NWP) growth is likely to slow in 2023 to 6%–7% YoY, vs. 10% in 2022 and 15% in 2021.
An unprecedented four-year hardening phase of the commercial lines underwriting cycle will continue through 2023. The Council of Insurance Agents & Brokers’ (CIAB) commercial lines market survey indicates overall rates rose 8.8% in 1Q23, compared with 6.6% in 1Q22.
Rate momentum since 2020 was boosted by pandemic-related socio-economic uncertainty, followed by subsequent persistently high inflation. Although pricing trends showed signs of moderating in early 2022, weaker loss experience and higher reinsurance costs are leading to a 2023 rebound in pricing momentum in property lines and, to a lesser degree, in the auto segment.
Workers’ compensation continues to post the best product segment underwriting profits, with an average combined ratio of 89% from 1998–2022. Strong premium growth in 2022 from exposure changes, falling claims frequency and highly favorable reserve experience bolstered recent performance.
Conversely, the commercial auto line combined ratio worsened to 105% in 2022 vs. 100% in 2021. Despite ongoing commercial auto premium rate increases, claims severity issues tied to higher auto parts and repair costs and litigation exposures will continue to challenge performance in 2023.