By Max Dorfman, Research Writer, Triple-I

The latest insurance underwriting projections for property/casualty lines by actuaries at the Triple-I and Milliman – an independent risk-management, benefits, and technology firm – reveal that the industry saw the 2021 combined ratio worsen by 0.8 points from 2020, driven by deterioration in the personal auto and workers compensation lines. The report, Insurance Information Institute (Triple-I) /Milliman Insurance Economics and Underwriting Projections: A Forward View, presented at a members-only event on May 12, also found that homeowners, commercial auto, commercial multi-peril, and general liability all experienced significant improvement year-over-year.

Michel Léonard, PhD, CBE, Chief Economist and Data Scientist, and head of Triple-I’s Economics and Analytics Department, discussed key macroeconomic trends impacting the property/casualty industry results. He noted that the U.S. P&C insurance industry’s performance continues to be constrained by historically high inflation, which affects replacement costs.

“The insurance industry’s performance continues to be severely constrained by macroeconomic fundamentals,” he said “The average replacement costs for P&C lines is 16.3 percent, nearly twice the U.S. average CPI of 8.5 percent.”

Léonard noted that while the Federal Reserve forecasts U.S. inflation slowing to 4.3 percent by yearend, “Triple-I expects the transition to take longer.”

Dale Porfilio, FCAS, MAAA, Chief Insurance Officer at Triple-I, noted that 2021 had the worst full-year catastrophe losses since 2017, though Q4 actuals were materially lower than prior expectation. Kentucky tornadoes and Colorado wildfires in December were part of these losses, with homeowners suffering over 60 percent of the insured losses. Hurricane Ida was the worst single event, although multiple other billion-dollar events also contributed to the 2021 insured catastrophe losses.

“Healthy premium growth observed in 2021 is likely to continue through 2024 due to the hard market,” Porfilio said, adding, “Net expense ratio at 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 industry as a whole, he said to expect loss pressures to continue due to inflation and supply chain disruption.

On the commercial side, Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman, said  the commercial multi-peril 2021 combined ratio improved 3.6 points from 2020, primarily due to strong net earned premium growth, which stood at 6.3 percent year over year, from the economic recovery and a hard market.

“Despite the improvement relative to 2020, the CMP line still experienced an underwriting loss in 2021, and we expect underwriting results in 2022-2024 will continue to be adversely impacted by inflation and CAT loss pressures,” he said.

Workers compensation had another very profitable year, Kurtz said, with the 2021 combined ratio coming in at 91.8 percent, although margins shrank in 2021 and are expected to continue to shrink through 2024.

“The workers comp line has experienced seven straight years of underwriting profitability, a remarkable turn-around after eight straight years of underwriting losses,” Kurtz said.  “Not surprisingly, rate increases have been hard to come by. Coupled with low unemployment, these forces will constrain premium growth for the foreseeable future.”   

For commercial auto, the 2021 combined ratio improved by 3.0 points from 2020 due to lower adverse development and a two point reduction in expense ratio, according to Dave Moore, FCAS, MAAA of Moore Actuarial Consulting.

“The 2021 combined ratio dipped below 100 percent for the first time since 2010 and we’ve had the lowest expense ratio in more than a decade,” he said. “Watch for social inflation loss pressure and prior year adverse loss development in 2022-2024.”

According to projections, both personal auto and homeowners lines produced underwriting losses in 2021. Prices need to reflect the underlying risk, particularly because the economic risk is quickly escalating.

Porfilio said the 2021 combined ratio for personal auto jumped up to 101.4, the worst since 2017 and 8.9 points worse than 2020.

“While miles driven are largely back to 2019 levels, riskier driving behaviors have led to increased insured losses and fatality rates,” he said.

Overall, the loss pressures from inflation, supply-chain disruption, risky driving behavior, and increasing catastrophe losses are leading to the need for rate increases to restore both homeowners and personal auto lines to an underwriting profit, which is projected to take at least two more calendar years.

By Loretta Worters, Vice President, Media Relations, Triple-I

The property/casualty insurance industry will run at an estimated 101 combined ratio for 2021, slightly worse than what was projected three months ago, putting pressure on rates and profitability, according to the latest underwriting projections by Triple-I and Milliman actuaries.

The industry is projected to experience 7.7 percent net written premium growth in 2021, followed by 5.2 percent in 2022 and 5.5 percent in 2023, due to the economic recovery and hard market.

The quarterly report, Insurance Information Institute (Triple-I) / Milliman P/C Underwriting Projections: 2021-2023, was presented at an exclusive members only virtual webinar moderated by Triple-I CEO Sean Kevelighan.

Triple-I Chief Insurance Officer Dale Porfilio explained that the 2021 estimated combined ratio – a measure of insurance company underwriting profitability — worsened from prior quarterly analysis “primarily because actual third-quarter catastrophe losses were worse than expected, with Hurricane Ida being the most destructive event.“

The 2021 year-to-date catastrophes are now the worst since 2017, when Harvey, Irma, and Maria all struck the U.S., Porfilio said.

He added that “healthy premium growth is projected for 2021-2023, as a result of economic recovery and a hard market” – an extended period of increasing premiums and decreasing capacity. Porfilio noted, however, that “insureds will continue to face rate pressure from the uncertainty of the pandemic.”

On the personal auto side, Porfilio said personal auto experienced improving combined ratios from 2016 through 2020, with 2020 heavily influenced by the lower miles driven during the pandemic.

“With miles driven in 2021 back to 2019 levels, we expect combined ratios to also return to pre-pandemic levels,” he said. “The greater concern for the entire industry is the observed riskier driving behaviors, such as impaired driving, speeding, and failure to wear seatbelts, leading to more severe accidents and increased fatalities.”

Looking at the commercial side, Jason B. Kurtz, a principal and consulting actuary at Milliman – an independent risk-management, benefits, and technology firm – said the hard market persisted in the third quarter, particularly in commercial product lines.

For commercial multiple-peril insurers, Kurtz said, “We are currently estimating a 2021 combined ratio of 109 percent. This line got off to a difficult start in the first quarter due in part to the Texas freeze event, resulting in a historically high first quarter incurred loss ratio on a direct of reinsurance basis.”

Turning to workers compensation, Kurtz noted that underwriting profits will continue, although margins are shrinking. “The pandemic recession significantly impacted premium volumes, but we are finally seeing premium growth again with the economic recovery,” he said.

In commercial auto, underwriting losses are forecast to continue through 2023, said Dave Moore president of Moore Actuarial Consulting. “We believe social inflation is playing a role in these combined ratios remaining above 100 percent despite many successive years of steady rate increases,” he said. “We continue to observe a significant rebound in premium growth due to the economic recovery and the hard market driving rate increases.”

Moore added that Triple-I will be publishing research later in the month on social inflation, funded by a research grant from the Casualty Actuarial Society (CAS).  “We estimate social inflation increased commercial auto liability claims expense by roughly $20 billion for accident years 2010 – 2019.”

Michel Léonard, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, discussed the economic drivers of insurance performance for 2021 and going into 2022. He noted that the insurance industry is expected to grow by 3.4 percent in 2021, 2.4 percent below U.S. real GDP growth of 5.8 percent.

“This aligns with historical trends whereby the insurance industry declines less than the overall economy going into downturns but lags national averages during recoveries,” he said, adding, “Going into Q4, as more 2021 data becomes available, the more cool-headed forecasts for overall U.S. growth and inflation have prevailed. While both remain higher than usual on a year-over-year basis, overall U.S. growth is still falling short of making up for the growth lost to the pandemic over the last two years.” 

With the 2021 Atlantic hurricane season nearly over, it is on track to be an above-average season with a total of 21 named storms (trailing only 2020 and 2005 for the most named storms in a single season), according to Dr. Philip Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University.

Klotzbach, who is also a Triple-I Non-Resident Scholar, gave his updated projections for the 2021 hurricane season, which officially ends on November 30.  He noted that the season had seven hurricanes and four major hurricanes. “The most significant hurricane of the 2021 season was Hurricane Ida, which resulted in nearly 100 fatalities and $65 billion in total damage for the United States,” Klotzbach said. “In addition to devastating storm surge and strong winds near where the storm made landfall along the central Louisiana coast, Ida brought catastrophic flooding to the mid-Atlantic states, highlighting the significant impacts that hurricanes can generate well inland.”