Underwriting profits continue upward trend for P&C insurers
Insurance premiums are expected to surge 7.1% as the economic recovery and hard market increase exposures and rates.
Property & casualty insurers will continue to see slight underwriting profits in 2021 as the economy moves into post-COVID recovery, according to a new forecast by the Insurance Information Institute (Triple-I) and Milliman.
The analysis was revealed during a members-only virtual webinar, “Triple-I /Milliman Underwriting Projections: A Look Ahead,” moderated by Triple-I CEO Sean Kevelighan.
In 2021, the forecasters see little change in the industry’s combined ratio over 2020, with a projection of 99 for the year, which represents the percentage of each premium dollar an insurer spends on claims and expenses.
Insurance premiums also are predicted to increase by 7.1% — up 4.6 percentage points from 2020 — as a result of the economic rebound and hard market conditions increasing exposures and rates, the forecast said. This surge, however, is expected to slow in 2022 and 2023 but remain above 5% in both years. Also, in 2022, the P&C industry should start to see improvements in underwriting results, said Jason B. Kurtz, a principal and consulting actuary at Milliman.
“Last year’s recession was unusual in that there really wasn’t anything wrong with the economy until COVID hit,” Kurtz noted. “So now, with COVID (hopefully) on the run, the American Rescue Plan well underway, and the possibility of another stimulus at some point later this year, growth should be strong.”
The workers’ compensation market is also on a strong footing in 2021. “Despite experiencing a 10% drop in net written premium amidst the pandemic recession, NCCI reports a calendar year combined ratio of 87, indicating a sign of profitability for carriers,” said Donna Glenn, chief actuary at the National Council on Compensation Insurance (NCCI).
Despite some trends positively impacting the industry, P&C insurers should remain cautious of certain economic development, said Dr. Michel Léonard, CBE, vice president and senior economist at Triple-I, who pointed to Gross Domestic Product (GDP) and inflation as areas to watch.
“We’ve never seen GDP forecasts from the Fed and financial institutions ranging from 4% to as much as 10%,” explained Léonard. “What we can be sure is that the economy has been recovering in Q1 and so far in Q2, but such discrepancies in major economic indicators should be cause for caution, especially as COVID-19 is still an issue here in the U.S. and abroad.”
With this in mind, insurers should focus on their sector’s growth, which outperformed the wider economy by nearly 6% in 2020 and is poised to do so again in 2021, said Léonard. “Another insight is the growing consensus around the upward direction of interest rates which should help lift up net income from last year’s minus 3.8%,” he added.
For more insights from the exclusive “Triple-I /Milliman Underwriting Projections: A Look Ahead” webinar, visit the Triple-I website.
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