The latest insurance guarantees for property / accident lines of actuaries at Triple-I and Milliman – an independent risk management, benefit and technology company – reveal that the industry saw the 2021 total quota deteriorate by 0.8 points from 2020, driven by deterioration of the lines for passenger cars and work compensation. The report, Insurance Information Institute (Triple-I) / Milliman Insurance Economics and Underwriting Projections: A Forward View, presented at an event for members only on May 12, also found that homeowners, commercial vehicles, commercial multi-risks and general liability all experienced significant improvements year over year.
Michel Léonard, PhD, CBE, Chief Economist and Computer Researcher, and Head of Triple-I’s Economics and Analysis Department, discussed important macroeconomic trends affecting the performance of the real estate / accident industry. He noted that the performance of the US non-life insurance industry continues to be limited by historically high inflation, which affects claims costs.
“The insurance industry’s performance continues to be severely constrained by macroeconomic fundamentals,” he said.
Léonard noted that although the Federal Reserve predicts that US inflation will slow to 4.3 percent by the end of the year, “Triple-I expects the transition to take longer.”
Dale Porfilio, FCAS, MAAA, Chief Insurance Officer at Triple-I, noted that 2021 had the worst full-year disaster losses since 2017, even though the actual Q4s were significantly lower than previous expectations. Kentucky tornadoes and forest fires in Colorado in December were part of those losses, with homeowners suffering more than 60 percent of the insured losses. Hurricane Ida was the worst single event, although several other billion-dollar events also contributed to the 2021 insured disaster losses.
“Healthy premium growth observed in 2021 is likely to continue through 2024 due to the tough market,” Porfilio said, adding, “The net cost ratio of 27.0 points was the lowest in more than a decade due to faster-growing premiums. rate than costs. “
For the P&C industry as a whole, he said that the loss pressure would continue due to inflation and disturbances in the supply chain.
On the commercial side, Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman, said that the commercial multi-peril 2021 combined ratio improved by 3.6 points from 2020, mainly due to strong net earned premium growth, which was low at 6.3 percent year over year, from the economic recovery and a tough market.
“Despite the improvement over 2020, the CMP line still experienced an insurance loss in 2021, and we expect that emissions results in 2022-2024 will continue to be negatively impacted by inflation and CAT loss pressures,” he said.
Workers’ compensation still had a very profitable year, Kurtz said, with the 2021 total cost percentage coming in at 91.8 percent, although margins shrank in 2021 and are expected to continue shrinking until 2024.
“The Workers Comp line has experienced seven consecutive years of insurance profitability, a remarkable turnaround after eight years in a row of insurance losses,” Kurtz said. “Not surprisingly, interest rate hikes have been difficult to achieve. Together with low unemployment, these forces will limit premium growth for the foreseeable future.”
For commercial cars, the total cost of 2021 improved by 3.0 points from 2020 due to lower negative development and a two-point reduction in the cost ratio, according to Dave Moore, FCAS, MAAA from Moore Actuarial Consulting.
“The total cost percentage of 2021 fell below 100 percent for the first time since 2010 and we have had the lowest cost ratio in more than a decade,” he said. “Watch out for social inflation loss pressure and the previous year’s negative loss trend 2022-2024.”
According to forecasts, both private cars and homeowners incurred insurance losses in 2021. Prices must reflect the underlying risk, especially as the economic risk escalates rapidly.
Porfilio said that the 2021 combined ratio for passenger cars jumped up to 101.4, the worst since 2017 and 8.9 points worse than 2020.
“While miles driven are largely back to 2019 levels, more risky driving behaviors have led to increased insurance losses and deaths,” he said.
Taken together, the loss pressure from inflation, supply chain disruptions, risky driving behavior and increasing catastrophic losses leads to the need for interest rate increases to restore both homeowners and private car lines to an insurance gain, which is expected to take at least two more calendar years.