Overall Underwriting Loss Persists According to Recent 2023 Q3 Update

In a recent quarterly report, the Insurance Information Institute (Triple-I) and Milliman revealed key insights into the property and casualty (P&C) industry's performance in the third quarter of 2023.

The report, titled Insurance Economics and Underwriting Projections: A Forward View, was presented at the end of last month in an exclusive members-only virtual webinar.

Overall Performance and Market Trends

• The 2023 net combined ratio for the P&C industry is forecasted to be 103.9.
• Commercial lines outperformed personal lines, with ratios of 97.7 and 109.9, respectively.
• Severe convective storm losses set record levels, acting as a significant factor in overall adverse results.
• Hard markets continue with 2023 net written premium growth forecast at 9.0 percent.

Macroeconomic Trends

Dr. Michel Léonard, chief economist at Triple-I, highlighted macroeconomic trends affecting industry results, including the following.

• Real gross domestic product accelerated to 4.9 percent in Q3 2023, with a year-over-year growth expectation of 2.1 percent.
• The consumer price index (CPI) continues to slow down to 3.1 percent as of November, but CPI, less food and energy, is still up 4.0 percent year over year.
• Year-over-year P&C underlying growth was 1.3 percent in 2023 and is forecasted by Triple-I to grow 2.6 percent in 2024. This is below US GDP growth in 2023 and slightly above US GDP growth in 2024.
• Year-over-year P&C replacement costs increased by 1.1 percent in 2023 and are forecasted to increase by 2.0 percent in 2024.

Underwriting Projections

Dale Porfilio, chief insurance officer at Triple-I, reported the following in terms of the underclimate.

• Higher-than-expected Q3 incurred loss ratios for homeowners, commercial auto, and commercial multiperil lines.
• Homeowners insurance faces a challenging year, with a forecasted net combined ratio of 112.3, the worst since 2011.
• The 2023 net written premium growth rate of 12.4 percent is the highest in over 10 years, reflecting rate increases to offset inflationary loss costs.
• Personal auto and homeowners lines are expected to improve in 2024 and 2025 but will remain unprofitable.

Commercial Lines

Jason B. Kurtz from Milliman highlighted the following regarding profitability in commercial property and workers compensation.

• Commercial auto faces challenges with a projected 2023 net combined ratio of 110.2, the highest since 2017.
• The 2023 net written premium growth rate of 6 percent is noticeably lower than the prior 2 years.
• Commercial multiperil is forecasted to have a net combined ratio of 110.3, the highest since 2011.

Workers Compensation

Mr. Kurtz and Donna Glenn, chief actuary at the National Council on Compensation Insurance, identified rate adequacy and medical inflation as two of the industry's top concerns with the following insights.

• Workers compensation maintains a favorable outlook, with a 2023 net combined ratio of 88.7, consistent with the 5-year average.
• Loss costs have been on the decline for 10 consecutive years, which can be credited to the strong labor market and overall economy, resulting in payroll increases and outpacing loss cost declines.
• Nonetheless, concerns exist surrounding rate adequacy and medical inflation as medical costs continue to increase. Currently, the rate of increase remains moderate—in the 2.5–3.5 percent range.