Medical professional liability (MPL) insurers saw an increase in net after-tax income in 2024 for the second consecutive year, but underwriting performance continued to decline, according to a new AM Best report.
The report highlights that growth in loss and loss adjustment expenses (LAE) outpaced premium growth in 2024. The MPL composite recorded an underwriting loss of $586 million, compared to a loss of $395 million in 2023. This marks the 10th straight year of underwriting losses for the segment.
Despite ongoing underwriting pressures, the composite's bottom-line results improved. Net income rose by 155% year-over-year, reaching $2.1 billion in 2024. Pretax operating income increased 8.7% to $1.1 billion, driven by higher net investment income as insurers benefited from elevated interest rates.
A substantial increase in realized capital gains also contributed to overall profitability, offsetting the deterioration in underwriting results.
The report attributes much of the claims pressure to rising severity, which continues to be influenced by factors such as nuclear verdicts and the weakening of state tort reforms. While many states maintain caps on non-economic damages, economic damages are trending upward.
David Blades (pictured above), associate director, industry research and analytics at AM Best, said that social inflation, life care plans, jury anchoring, and litigation financing are frequently cited as contributing to the escalation of excess verdicts.
“As social inflation persists and results in higher ultimate incurred indemnity losses, underwriting results may be impacted further if pricing doesn’t keep up,” Blades said.
The report also outlines broader trends shaping the MPL segment. The post-pandemic environment and the rise of data-driven healthcare delivery have introduced more complex risks.
AM Best noted that most rated MPL insurers remain well-capitalized, with solid cash flows, large investment portfolios, ample liquidity, and sound risk management practices.
The US MPL insurance sector experienced modest premium growth in 2024, with direct written premiums (DWP) increasing by 3.1% to approximately $6.9 billion. This growth was supported by higher investment income, which rose from $430 million in Q3 2022 to $900 million in Q3 2024.
Despite these gains, the industry faced challenges with underwriting losses. The combined ratio for MPL specialty writers stood at 108% in 2024, indicating that underwriting losses persisted. Factors contributing to these losses included rising claim severity, increased defense costs, and the impact of social inflation.
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