Reinsurance and the weather impact huge US P&C underwriting losses

It's a trifecta of pain for the sector

Reinsurance and the weather impact huge US P&C underwriting losses


By Kenneth Araullo

A trifecta of weather-related losses, continued inflation, and surge in reinsurance pricing prompted an unprecedented record loss for property & casualty in the US, an AM Best report has revealed.

The sector faced a challenging year in 2023, recording a net underwriting loss of $38 billion, the highest in a decade, primarily due to this trifecta of issues.

This was outlined in the latest AM Best report, “US Property/Casualty: Weather, Reinsurance, and Inflation Drive Results – Again,” part of the annual Review & Preview Best’s Market Segment Report series.

Despite these underwriting losses, the P&C industry managed to secure a considerable pretax operating profit last year, aided by enhanced investment yields and an increase in net investment income. The sector also benefited from equity market gains, recovering from the unrealized losses of 2022 during a bullish market in the latter half of 2023.

What impacted P&C performance?

AM Best noted the P&C industry was impacted by approximately $65 billion in catastrophe losses. That said, the US experienced only one hurricane landfall, with the majority of losses attributed to secondary perils. The National Oceanic and Atmospheric Administration (NOAA) recorded an unprecedented 28 single catastrophe events, each surpassing $1 billion in losses in 2023.

The pursuit of rate increases by personal lines insurers since early 2022, aimed at reflecting their rate needs more accurately, has been vigorous. Nonetheless, the potential for underwriting improvements was hampered by regulatory challenges, inflationary pressures, and the increasing frequency and severity of weather-related events.

“The increasing volatility from what have been known in the industry as secondary perils raises the question of whether they will have a more primary role going forward,” director Sharon Marks said.

The private passenger auto segment has recorded net underwriting losses for three years consecutively, despite being a traditionally dominant business line in the P&C industry. AM Best forecasts a more than 12% increase in personal lines premiums for 2023, with an additional 10% increase expected in 2024.

The firm also anticipates better underwriting and operating results for the P&C sector in 2024, supported by the continued profitability of commercial lines, improvements in personal lines, and enhanced investment returns due to higher yields and strong cash flow.

Commercial lines insurers reported strong underwriting results throughout 2023, a trend expected to persist, propelled by significant net premiums earned following rate increases across most major commercial lines in previous years.

The personal auto and homeowners’ segments ended 2023 with an estimated combined ratio of 110%, whereas commercial lines maintained a solid performance at 97.1%. The overall P&C industry concluded the year with an estimated combined ratio of 103.7%.

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