Commercial lines outperform personal, but underlying loss persists – report

Commercial lines continued to outperform personal lines in 2023, but an overall underlying loss persists, according to a new report.

The 2023 net combined ratio for the property-casualty industry is forecast to be 103.9, according to a new report by actuaries at the Insurance Information Institute (Triple-I) and Milliman. The combined ratio for commercial lines is projected to be 97.7, outperforming personal lines’ projected 109.9.

Record levels of severe convective storm losses were the biggest single driver of the results, according to a Triple-I news release. Net written premium growth for 2023 is forecast at 9%.

Michel Léonard, PhD, Triple-I chief economist and data scientist, said the P&C industry was impacted by macroeconomic trends including inflation, interest rates, and overall economic underlying growth.

“Real gross domestic product (R-GDP) in the third quarter of 2023 accelerated to 4.9%, but economists still expect year-over-year growth of 2.1%,” Léonard said. He added that for GDP, “revised Q3 numbers did not disappoint but all eyes remain on Q4.”

The consumer price index (CPI) continued to slow down to 3.1% as of November, according to Triple-I. However, CPI excluding food and energy was up 4% year over year.

“Year-over-year P&C underlying growth grew 1.3% in 2023 and is forecasted by Triple-I to grow 2.6% in 2024,” Léonard said. “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% in 2023 and are forecasted to increase by 2.0% in 2024.”

Personal lines

Dale Porfilio, chief insurance officer at Triple-I, discussed overall underwriting projections for the P&C sector.

“The bad news is that the 2023 Q3 incurred loss ratio for homeowners, commercial auto, and commercial multi-peril exceeded our expectations, as 2023 Q3 incurred loss ratios that were above historical averages,” Porfilio said.

Triple-I said the financial results for the homeowners insurance segment were “bleak.”

“For 2023, the net combined ratio is forecast at 112.3, the worst since 2011,” Porfilio said.

The 2023 net written premium growth rate for the sector was 12.4%, the highest in over 10 years. The growth reflected rate increases to offset inflationary loss costs.

“We expect personal auto and homeowners lines to improve in 2024 and 2025, but to remain unprofitable,” Porfilio said.

Commercial lines

Commercial property and workers’ compensation continued to be profitable, while commercial auto and commercial multi-peril remained “troubled,” according to Triple-I.

“Looking at commercial auto, underwriting losses continue, with a projected 2023 net combined ratio of 110.2, the highest since 2017,” said Jason B. Kurtz, principal and consulting actuary at Milliman. “For 2023 Q3, the incurred loss ratio was the highest in over 15 years, while the 2023 net written premium growth rate of 6% is noticeably lower than the prior two years.

“For commercial multi-peril, the 2023 net combined ratio of 110.3 is forecast to be the highest since 2011,” Kurtz said.

Regarding workers’ compensation, Kurts said: “The 2023 net combined ratio of 88.7 is in line with the five-year average of approximately 89. With anticipated net written premium growth of 2% per year from 2023 through 2025, growth will be modest, but the net combined ratio is expected to remain favorable for our forecast horizon.”

Top concerns

Rate adequacy and medical inflation are two of the industry’s top concerns, according to Donna Genn, chief actuary at the National Council on Compensation Insurance (NCCI).

“We’ve seen loss costs decline for nearly 10 consecutive years,” Glenn said, crediting a “strong labor market and overall economy” that resulted in “payroll increases outpacing loss cost declines.”

Regarding medical inflation, Glenn said that NCCI  carefully monitors medical price indices.

“While costs are increasing, the rate of increase is moderate – in the 2.5-2.5% range,” she said.

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