The US insurance industry’s profitability is expected to deteriorate this year after losses from severe weather events including an unusual Texas freeze in the first quarter.

The combined operating ratio is forecast to increase to 99.6% from 98.7% last year, the Insurance Information Institute (Triple-I) and consulting firm Milliman said at a webinar last week.

Aon statistics estimate Texas freeze losses of $US15-20 billion ($21-28 billion), while extreme weather in the spring brought multi-billion-dollar thunderstorm and hail losses, and drought in the west has fuelled another severe wildfire season.

Milliman Principal and Consulting Actuary Jason Kurtz says the hard market is set to persist, particularly in lines hit by social inflation. Premium growth is projected at 7% this year and may remain above 5% in the next two years, while slowing slightly.

“Lines like commercial auto, commercial multi-peril, and general liability will still struggle to get their combined ratios under 100,” Mr Kurtz said.

“With ransomware attacks on the rise and tightening capacity, cyber bears watching, and homeowners insurers will have another tough year in 2021, but we predict improvement for 2022 and 2023.”

The combined operating ratio is forecast at 98.9% for next year and 99.3% for 2023.

Commercial auto insurance has been the business line most impacted by litigation trends, according to Insurance Research Council Vice President David Corum.

“We estimate broadly that social inflation increased commercial auto liability claims by more than $US8 billion ($11 billion) between 2010 and 2019,” he said.

On business interruption, judicial decisions related to cover for the COVID-19 pandemic continue to run mostly in favour of the industry, with the focus over the next 12-18 months to start shifting to state and federal appellate courts.

“There have been some outlier business interruption decisions in favour of policyholders and some less favourable jurisdictions for insurers that we are watching,” Triple-I Non Resident Scholar and Wiggin and Dana Partner Michael Menapace said.

“Insurers must also remain vigilant by pushing back against proposals by state legislatures or executive agencies that would change the terms of insurance contracts to provide coverage where none was intended and for which no premium was paid.”