U.S. P&C Underwriting Losses Hit 10-Year High of $38 Billion
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Original Article (03/14/2024): IA Magazine
The U.S. property & casualty industry’s underwriting loss was $38 billion in 2023, a 10-year high, according to AM Best’s latest market segment report. Factors contributing to the historic losses include catastrophes, inflation and reinsurance pricing.
The industry experienced $65 billion in CAT losses in 2023. While primary perils such as floods, hurricanes and earthquakes historically bring large losses, AM Best notes that secondary perils, such as hail, tornadoes, thunderstorms and wildfires, caused $35 billion of the CAT losses—an amount almost double the annual average figure.
AM Best analysts also said both economic and social inflation played large roles in p&c losses, pointing out that even though net commercial lines premiums rose 8.2% in 2023, a Swiss Re report found that liability claims costs have risen 16% in the past five years. Economic inflation continued its impact across all lines, with rising property replacement values and higher repair costs.
While reinsurance pricing contributed to the industry’s losses, the scene is improving, with U.S. reinsurers reporting improved underwriting results. Additionally, CAT losses did not have as significant of an impact on reinsurers as it did primary insurers, due to risk-adjusted rate increases in the property reinsurance market, the use of higher attachment points and the elimination of aggregate covers, according to AM Best.
The p&c’s industry overall combined ratio was 103.7 in 2023, up from 103.1 in 2022. The 2023 loss ratio included 7.8 points of CAT losses, far exceeding AM Best’s expected CAT load of 6.3 points. As a result, AM Best increased the projected CAT load figure to 6.8 for 2024.
While the overall underwriting result was the worst in a decade, the combined ratio for personal auto did improve more than 2 points, from 112.2 in 2022 to 109.5 in 2023. That may be improvement but personal auto is anticipated to continue its four-year streak of net underwriting losses in 2024.
The combined ratios for nearly every other line deteriorated, with inland marine the exception. The homeowners and farm owners multi-peril market shot up from 104.6 in 2022 to 111.0 in 2023. Additionally, workers compensation, a safe place for commercial lines carriers the past few years, experienced nearly 3 points of deterioration, with premiums only growing 3%.
State Farm’s $14 billion underwriting loss in 2023, the largest in the company’s history, is one example of the impact of increased catastrophes. In a statement, the company attributed the losses to “continued elevated claims severity and significant catastrophe activity, for both the auto and homeowners insurance companies.”
Additionally, State Farm’s incurred losses in non-auto lines, primarily homeowners and commercial multi-peril, grew by $8 billion in 2023, a 40% increase from 2022. The company did see an improvement in overall auto lines profitability, ending 2023 with an underwriting loss of $9.7 billion—down from $13.4 billion in 2022.
Across the p&c industry, net written premiums grew 11.4% last year, with personal lines growing 12% in 2023 and commercial lines growing 8.2%, according to AM Best.
Despite the losses, the p&c industry posted a pretax operating profit of $39.2 billion. Higher investment yields brought net investment income to $75.8 billion in 2023. Looking ahead, AM Best predicts net investment income to grow by 15% in 2024.
While AM Best predicts improved underwriting and operating results for 2024 driven by commercial lines profitability, personal lines improvements, and better investment returns, the report anticipates that 2024 will bring another year of underwriting losses.