P&C Combined Ratio Projected at 103.9; Commercial Lines Outperform Personal Lines

Triple-I experts weigh in on data behind the results

February 13, 2024 Photo

The 2023 net combined ratio for the property and casualty (P&C) industry is forecast to be 103.9, with commercial lines (97.7) outperforming personal lines (109.9), according to a report by the Insurance Information Institute (Triple-I) and Milliman, titled, “Insurance Economics and Underwriting Projections: A Forward View.”

Dale Porfilio, chief insurance officer with Triple-I, tells CLM, “Triple-I would point to two primary drivers of commercial lines being more profitable than personal lines in recent years: Insurance carriers increased rates for commercial lines products sooner and in higher amounts than personal lines products; and personal lines products pay a higher portion of their losses for repair and replacement costs (e.g., homes and autos) than commercial lines, so personal lines losses were more adversely impacted by recent inflationary pressures.”

Reasons Behind Adverse Net Combined Ratio

Porfolio explains, “This adverse result is a combination of: elevated inflation from 2021-2022, with an even greater impact on insurance repair and replacement costs than on the overall economy; record levels of severe convective storms exceeding $60 billion in U.S. insured losses; and legal system abuse (known within the insurance industry as social inflation) increasing the cost of liability losses.”

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P&C Underlying Growth and Replacement Costs

Year-over-year P&C underlying growth is forecasted to grow 2.6% in 2024, and year-over-year P&C replacement costs are forecasted to increase by 2% in 2024, according to the report. “Underlying growth for the P&C industry is forecasted to be less than the overall economy because of the slowdown in residential and commercial construction due to high interest rates—two types of economic activity that have an outsized impact on P&C growth given the relative size of homeowners and commercial property insurance compared to other lines,” says Dr. Michel Léonard, leader of Triple-I's Economics and Analytics Department.  

Furthermore, he continues, “Replacement costs for P&C lines are forecasted to increase less than overall inflation because of the outsized impact of prices for construction material, lumber, and used autos on insurance costs, as opposed to their weight in the overall [consumer price index (CPI)] basket.” Lastly, “Insurance's inflation basket is different than the CPI's. While this is good news for the industry, it comes after replacement costs increasing 45% across lines in the last four years due to pandemic inflation.”

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Workers’ compensation, Porfilio adds, “continues its recent trend of strong financial performance, with Triple-I forecasting an 88.7 net combined ratio in 2023. This would be the ninth consecutive year of underwriting profits for this product line.”

About The Authors
Angela Sabarese

Angela Sabarese, Associate Editor of CLM. angela.sabarese@theclm.org

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