US P&C insurers suffer 2.9 pt hike in 2022 combined ratio on claims spike

The US P&C industry deepened its underwriting loss in 2022 more than five times over to $26.5 billion as nearly 14% growth in loss costs exceeded an 8.4% gain in net earned premium,  AM Best said in its first accounting of the industry for 2022. .

“The personal lines segment, specifically the auto lines of business, were primarily responsible for the decline in underwriting results,” analysts noted.

The 8.4% growth in net earned premium to $724.6 billion is down lightly from the prior year's 9.4% growth, but well ahead of the low single digit rates seen during the pandemic.

Mark commercial multiple perils up 10.6% and homeowners multiple peril up 10.2%. Total auto, combining private and commercial, liability and physical damage, rose 6.8%, up from 5.6% in 2021 and mild erosion in 2020.

Other notable increases included 19.3% growth for inland marine and 10% growth for workers compensation to overcome the pandemic drought and return to levels from 2019.

With loss and loss adjustment expense growing well in excess of premiums at 13.9% y/y, the loss ratio was up by 3.7 percentage points from the 2021 reading to 76.4%, both on accident year losses and reduced prior period reserve release.

Despite the noise about Hurricane Ian, the impact of cat losses on the 2022 combined ratio came down to 6.9 percentage points (pps) from 7.7 points in 2021.

That cut to underwriting margin was softened only lightly by comparative control on expenses and trimmed policyholder dividends, leaving the year on year increase in the combined ratio at 2.9 pps to a technical loss of 102.7%.

Adjusted for lower accident year cat losses and lightly improved A&E loss ratios, the normalized accident year combined ratio is up a headier 3.4 pps.

Headed to the bottom line, the net of investment earnings and realized capital gains proved a rough wash, despite being padded by a nearly $11 billion one-off payment into Columbia Insurance. Mark the industry net profit down 31% to $42 billion.

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