P&C Industry’s Net Underwriting Loss to Hit A 10-year High Of $38B

The U.S. property and casualty (P&C) sector is likely to post a $38 billion net underwriting loss for 2023—a 10-year high, according to AM Best. The ratings firm cited the now-familiar issues of severe weather, inflation and higher reinsurance pricing as the primary reasons for the results.

By the numbers, 2023 should produce an 11.4% gain in net premiums written, a 2.5% increase in industry surplus and a 103.7% combined ratio. Catastrophe losses of an estimated $65 billion added an estimated 7.8 percentage points to the combined ratio.

Even with a record underwriting loss, the P&C industry also achieved a solid pre-tax operating profit, thanks to a boost in investment income. Commercial lines insurers also fared well, netting an underwriting profit and a combined ratio of 97.1%, powered by ongoing rate increases and savvy risk selection. For three years, however, the personal lines sector has been the driver of overall industry losses, hitting a 110% combined ratio in 2023.

There are “persistent pressures” on the industry’s future performance, AM Best observed, including both social and economic inflation, secondary perils, and an “unyielding” reinsurance market.

AM Best predicted a “solid rebound” for the industry in 2024 as underwriting and operating results improve in personal lines, with a more than 12% increase in premium and 10% projected for 2024 due to “aggressive” rate increases. The line is still likely to see an underwriting loss for 2024, especially as regulators resist rate hikes, but it may moderate to a degree, according to the report.

The personal auto and homeowners lines remain uniquely exposed to inflation, regulatory hurdles, and a rise in weather events once thought to be secondary to the less frequent primary perils like hurricanes and tropical storms. Just one hurricane made landfall in the U.S. last year, but a record 28 catastrophe events exceeded $1 billion in insured losses.

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

Insurers also can’t rely heavily on reinsurance to smooth out their portfolios amid heavy losses anymore, the firm said. A “fundamental shift” in reinsurance occurred in recent years, with primary insurers now retaining more of the risk due to higher attachment points and pricing. As a result, catastrophe losses didn’t hit U.S. reinsurers as much as primary companies in 2023.

“As secondary perils become more common, reinsurers have also been feeling the wrath of these storms and, as a consequence, have been raising reinsurance rates, increasing retentions, and introducing tighter terms and conditions,” said AM Best in the report. “Many believe these changes in reinsurers’ behavior will be longer-lasting than in the past, which will put even more of the onus and financial responsibility on primary insurers.”

The change in reinsurer appetite isn’t limited to property—AM Best cited more concerns on the casualty side as well. While reinsurers reported “robust” results for 2023, AM Best said it does “not expect that reinsurance underwriting conditions will ease significantly through 2024.”

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