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Home / Insurance / Triple-I Blog | JIF 2022: Combined Ratio takes center stage

Triple-I Blog | JIF 2022: Combined Ratio takes center stage



Photo credit: Don Pollard

By Max Dorfman, Research Writer, Triple-I

Insurers are expected to post an underwriting loss in 2022, after four years of modest underwriting profits, according to a panel at Triple-I̵

7;s Joint Industry Forum.

The panel was introduced by Paul Lavelle, Director of US National Accounts for Zurich North America, who noted that the insurance landscape has changed dramatically over the past year.

“The biggest concerns for the world economy are rapid inflation, the debt crisis and the cost of living,” Lavelle said in his opening remarks. “I think that’s why as an industry we have to pull this together and deal with all the variables.”

The panel consisted of Dr. Michel Léonard, Triple-I Chief Economist and Data Scientist; Dale Porfilio, Triple-I Chief Insurance Officer; and Jason Kurtz, principal and consulting actuary for actuarial consultancy Milliman Inc.

“Overall, inflation has gone up and replacement costs have fallen,” Léonard said in his opening remarks. “Growth has been challenging because of federal reserve policies that have brought the economy to a standstill. Most of the growth has disappeared in homeownership, a little bit on the commercial real estate side and the auto side.”

Porfilio said the increase in loss trends in the insurance industry reveals an insurance loss, with a projected total cost of about 105 in 2022. The combination ratio represents the difference between payments and expenses and premiums collected by insurance companies. A combined ratio below 100 represents an insurance gain and a ratio above 100 represents a loss.

The underwriting loss in 2022 comes after a small underwriting gain from 2018 to 2021, at 99. However, underwriting performance is expected to improve as the industry moves forward.

“The results don’t look like previous years,” Porfilio said. “Underwriting fundamentals are a concern. However, after a poor performance in 2022, we expect some improvement in 2023 and 2024.”

Nevertheless, commercial lines are still relatively successful.

“Overall, commercial lines are relatively better than personal lines,” says Kurtz. “That was the case in 2021 and we expect it to be the case in 2022 and through our 2024 forecast period.”

This includes workers’ compensation, which approaches eight years of insurance benefits, according to Kurtz.

In the passenger car line, gains from 2020 have turned into the biggest losses in two decades.

“The personal car is very sensitive to supply and demand,” Léonard said. “In the last 24 months, there has been a historic swing in prices, and especially on used cars. It’s all about supply and demand. Those prices were up 30 to 40 percent year-on-year. But recently, prices have come down a bit. “

“The industry lived through high profitability in 2020 due to fewer drivers,” Porfilio added. “Fourteen billion were returned to customers that year.”

But due to increased driving and careless driving, the loss ratios have gone up.

The total cost percentage in 2021 was at 101, and over 108 in 2022, according to Porfilio. Nevertheless, loss trends are expected to return to normal in 2023 and 2024.

Interest rates have also affected home owner lines.

“Federal policy has penalized growth,” Léonard said.

“The underlying loss pressure and Hurricane Ian have created challenging results,” Porfilio added.

However, the tough market has caused 10 percent growth in 2022, partly due to exposure contracts, as well as interest rate hikes.

The combined ratio for 2022 is expected to be around 115, falling to around 106 in 2023, before an expected decline to around 104 per cent in 2024.

On the commercial vehicle side, the panelists forecast an emissions gain with a combined ratio of 99 in 2021, but there was a loss of four points in 2022. This is expected to improve in 2023, with a forecast ratio of 102 and 101 in 2024.

On the commercial property lines, markets face shortages of steel, glass and copper, according to Leonard, with labor challenges contributing to low- to mid-double-digit percentage time increases for some tasks.

“One of the most important factors in this is the delivery. It is very unlikely that the delivery will go back to where it was,” Léonard said. “We have estimated that it will take 30 percent longer for repairs, rebuilding and construction, and five per cent in respect of cost.”

However, Kurtz said the overall net ratio for commercial real estate markets is projected to be about 99.1 in 2022, a small underwriting gain despite losses linked to Hurricane Ian. For 2023, the total cost percentage is expected to be approximately 94 and 92 in 2024.

“We expect further rate increases and further premium growth,” Kurtz added.

In fact, insurance companies continue to adapt to these new challenges. Although 2022 is predicted to result in small losses, the industry continues to evolve.

As Lavelle said in his introduction, “Insurance companies can no longer just assess the risk, collect the premium and pay the loss. We are looked to to come up with answers.”


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