Actuaries project worst underwriting losses since 2011

Report proposes 'self-funding' insurance model for export industries

A new report from actuaries at the US-based Insurance Information Institute (III) and Milliman says property and casualty underwriting profitability will have its worst year since 2011, as significant disaster events and global economic uncertainty compound a hard insurance market.

The findings report the industry’s combined ratio – which measures profitability on a scale of 100, with below 100 representing a profit and above 100 as a loss – was 105.6, a significant worsening from last year’s 99.5.

Inflationary pressures, supply chain disruptions and geopolitical risk are all labelled as crucial contributors to the losses, with constraints expected to continue into next year.

“2023 is gearing up to be yet another year of historical volatility. Stubbornly high inflation, the threat of a recession, and increases in unemployment top our list of economic risks,” III Head of Economics and Analytics Michel Leonard said.

Mr Leonard warns of destabilising geopolitical risks as among other concerning issues for the market to consider.

“Russia’s weaponisation of gas supplies to Europe, China’s ongoing military exercises threatening Taiwan, and the potential for electoral disturbances in the US contribute to making geopolitical risk the highest in decades,” he said.

III Chief Insurance Officer Dale Porfilio forecasts that insurance premiums will have risen by 8.8% for the year and will increase by 8.9% for next year as the industry continues to deal with a hard market.

The report expects catastrophic losses to reach similar levels to 2017, primarily due to Hurricane Ian.

Losses are expected to worsen for personal auto sectors as overall driving usage returns to pre-pandemic levels.

“Low miles driven in the first year of the pandemic contributed to favourable experience. Since then, miles driven has largely returned to 2019 levels, but with riskier driving behaviours, such as distracted driving, and higher inflation,” Mr Porfilio said.

“Supply chain disruption, labour shortages and costlier replacement parts are all contributing to current and future loss pressures.”

President of Moore Actuarial Consulting Dave Moore says that general liability is forecast to make an underwriting profit between 2022-2024, with premium growth remaining “strong from the hard market”.