US Commercial Lines Insurers Face Challenges as Premium Hikes Persist
June 09, 2023
Slower revenue growth, inflation-based claims uncertainty, and less favorable loss reserve experience are challenging US commercial lines insurers, according to Fitch Ratings.
Fitch projects the US commercial lines sector will post a combined ratio of 97–98 percent in 2023, up from 96 percent in 2022.
And, while US commercial lines reported statutory underwriting profits in 4 of the last 5 years, net written premium growth is likely to slow to 6–7 percent year on year in 2023 versus 10 percent in 2022 and 15 percent in 2021.
"An unprecedented four-year hardening phase of the commercial lines underwriting cycle will continue through 2023," the rating agency said in a statement, citing data from the Council of Insurance Agents & Brokers showing overall rates rose 8.8 percent in the first quarter of this year, compared with a 6.6 percent increase in the first quarter of 2022.
"Rate momentum since 2020 was boosted by pandemic-related socio-economic uncertainty, followed by subsequent persistently high inflation," the Fitch statement said. "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."
Fitch said that workers compensation continues to be the line producing the best underwriting profits, with an averaged combined ratio of 89 percent over the period from 1998 to 2022. The rating agency said that strong premium growth in 2022 from exposure changes, falling claims frequency, and highly favorable reserve experience boosted the line's recent performance.
Meanwhile, the commercial auto line's combined ratio worsened to 105 percent in 2022 from 100 percent the prior year, Fitch said. "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," Fitch said.
June 09, 2023
