P&C Industry Combined Ratio Worsened in 2022


Deteriorating personal lines performance and economic volatility led to an estimated four-point worsening of the property and casualty (P&C) industry’s combined ratio last year to 104, according to a new AM Best report.

P&C insurers contended with ongoing issues of rising loss costs, above-average catastrophe (CAT) activity (in part fueled by climate change), adverse trends in personal auto, soaring inflation and social inflation, among others. The worsening combined ratio came despite an estimated 8.8% growth in premiums over 2021.

AM Best estimated 2022 combined ratios of 108.2 for personal lines, 98.4 for commercial lines and 101.9 in reinsurance. Estimated premium growth for the year was 8.8% for personal lines, 10.3% for commercial lines and 3.5% for reinsurance. AM Best’s outlooks for personal and commercial lines remained negative and stable, respectively.

AM Best wrote that the private passenger auto segment “had its comeuppance” last year. More expensive repairs, higher used-car prices, supply chain and labor market issues, and growing medical costs contributed to rising losses. Distracted driving and poor driving habits also impacted segment results. Insurers continued raising rates to improve rate adequacy, but the benefits have not yet materialized. AM Best said it appears unlikely the segment will return to underwriting profitability in the near term.

“Personal auto is the industry’s single-largest line of business, [as] it represents about one-third of the entire industry and about 70% of the personal lines portfolio,” John Andre, managing director at AM Best, said in a video discussion of the report. “The results from that certainly move the needle on the industry.”

Last year had its share of weather-related losses. Aon estimated that, globally, more than 400 notable natural disasters occurred in 2022, with worldwide insured losses of over $132 billion. The U.S. sustained estimated CAT-insured losses of around $90 billion. Leading the way was Hurricane Ian, which caused estimated losses of up to $65 billion.

“Climate-related disasters are taking a growing toll on U.S. P&C results,” AM Best wrote. Rate increases helped mitigate the weather impact, though reinsurance pricing and availability have tightened, especially for CAT-prone business lines and regions.

According to AM Best, stubbornly high inflation was the “most notable adverse trend” on commercial lines last year. Insurer loss costs will likely continue rising as inflation further drives up the price of goods and materials, as well as the repair and replacement of damaged property.

Social inflation—or the rise in claims demands, settlements and judgments—continued taking a toll on casualty lines. AM Best said claims trends “will likely start to approach historical levels” as courts ramp up to full productivity and more employers bring workers back to the office following the pandemic.

“Emerging classes of potential litigation merit continued vigilance by casualty insurers,” noted AM Best. In addition to well-established areas of litigation, the emergence of new types of liabilities is an ever-present exposure for commercial casualty insurers, particularly in light of evolving legal and social attitudes.”

AM Best estimated overall industry reserves as of year-end to be $3.6 billion stronger than in 2021. Most reserve strengthening occurred in other/product liability, and most reserve weakening occurred in workers’ compensation and personal auto liability.