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The overall property/casualty insurance industry’s combined ratio is heading for more than 100% for the first time since 2017 due to inflationary pressures, but the commercial lines sector’s combined ratio is expected to remain well below that, Standard & Poor’s Corp. said in a report issued Wednesday.
The S&P Global Market Intelligence report projects the 2022 combined ratio for the overall industry will increase by more than 0.9 percentage point on a year-over-year basis to 100.4%.
S&P predicts the commercial lines sector’s combined ratio will inch up to 96.3%, from 96.1% last year, which was the best result since 2015.
The rating agency projects a direct premiums written increase this year of 10.6% for commercial lines, which, it said, “would represent a pullback for 2021’s torrid pace of 13.6%, but it should be sufficient to stay in front of loss-cost inflation.”
S&P forecasts commercial lines’ premium growth will remain strong in 2023 at 6.6%, “but the direction the U.S. economy takes in the second half of 2022 will have much to say about whether pricing momentum and the demand for coverage in the most susceptible business lines begin to wane.”
The report predicts that premiums for standalone cybersecurity insurance policies will continue to rise this year.
“Factors such as the increased importance of remote information technology capabilities in the pandemic era, high-profile ransomware and distributed denial-of-service attacks on large corporations and critical infrastructure, and fears about potential retaliatory attacks by state-sponsored actors have led to a surge in demand for coverage at a time many in the industry have been reluctant to materially boost capacity,” the report said.
The report noted that “recent events have also invited closer scrutiny of policy language to determine the existence and strength of exclusions.” It said exclusions may “prevent significant amounts of property, aircraft and airlines insurance claims for damage related” to the Russia-Ukraine conflict.
The report also said the push to develop environmental, social and governance frameworks “may take on new importance for the insurance industry.”