P&C Industry Faces Mixed Financial Outlook in 2023: A Deep Dive into Commercial and Personal Lines Performance

The property and casualty (P&C) industry is navigating a challenging financial landscape in 2023, with a projected net combined ratio of 103.9. This forecast, provided by the Insurance Information Institute (Triple-I) and Milliman, highlights the disparate performance between commercial and personal lines, with commercial lines expected to achieve a more favorable net combined ratio of 97.7, compared to 109.9 for personal lines. The superior performance of commercial lines is attributed to earlier and higher rate increases, alongside a lower proportion of losses for repair and replacement costs, which were less affected by recent inflationary pressures compared to personal lines.

Dale Porfilio from Triple-I identifies several factors contributing to the adverse net combined ratio, including heightened inflation impacting insurance repair and replacement costs more significantly than the overall economy, record-breaking insured losses from severe convective storms, and increasing liability loss costs due to legal system abuse, or social inflation. These challenges underscore the complex dynamics influencing the P&C industry’s financial health.

Looking ahead to 2024, the P&C industry is expected to see a modest growth of 2.6% in underlying growth, while replacement costs are projected to increase by 2%. Dr. Michel Léonard of Triple-I explains that the P&C industry’s growth is forecasted to lag behind the overall economy due to a slowdown in residential and commercial construction, largely driven by high interest rates. Despite the anticipated increase in replacement costs, it is expected to be less than overall inflation, reflecting the unique composition of the insurance inflation basket compared to the consumer price index (CPI).

Furthermore, the workers’ compensation line continues to show strong financial performance, with an anticipated net combined ratio of 88.7 in 2023, marking the ninth consecutive year of underwriting profits. This resilience amidst broader industry challenges highlights the diverse factors impacting different lines within the P&C sector.