2023 P&C Industry Outlook: Net Combined Ratio Hits 103.8% Amid Rising Replacement Costs and Market Challenges

The property/casualty (P&C) insurance industry is facing a tough year in 2023 with a forecasted net combined ratio of 103.8%, indicating an unprofitable stance. This is largely attributed to the highest severe convective storm losses in decades. However, despite this unprofitability, the industry is experiencing a hard market, with an expected net written premium growth of 8.3%. Triple-I’s Chief Economist, Michel Léonard, highlights the sector’s growth, outpacing overall gross domestic product (GDP) growth, but warns of potential risks in 2024, including geopolitics, weakening employment, and GDP contraction. Additionally, the Federal Reserve’s rate decisions might negatively impact home and auto insurance economic growth.

Another concern for the P&C industry is the sharp increase in replacement costs, which have risen by an average of 45% between 2020 and 2023, outstripping the overall U.S. economy’s inflation rate. These elevated replacement costs are expected to normalize more quickly than general inflation but will require a significant time to adjust to pre-pandemic levels. This factor, coupled with economic challenges, adds complexity to the industry’s landscape.

Looking ahead, Dale Porfilio from Triple-I forecasts improvements in personal lines from 2023 through 2025, although they will still fall short of the stronger profitability in commercial lines. The overall P&C industry is expected to return to a slight underwriting profit by 2025. Meanwhile, Jason B. Kurtz from Milliman notes that commercial property, general liability, and workers’ compensation are performing well, contrasting with the troubled commercial auto sector.