Investment income helped US P&C mutuals ride out cat losses: AM Best

US property casualty (P&C) mutual insurance companies have been able to lean on investment income to help offset the weather-related challenges that have driven underwriting volatility, according to a new AM Best report.

The new Best’s Market Segment Report, “US Property/Casualty Mutual Insurers Resilient Despite Perpetual Volatility”, published September 19, notes that in 2023 this segment faced pressure from continued inflation, with costs remaining high for traditional losses, on top of yet another year of severe weather-related activity.

“Many insurers are receiving rate increases, but there has been pushback.”

These factors drove pure losses up by nearly 15 percent in 2023, compared with a year earlier. US P&C mutuals recorded an underwriting loss of $36.6 billion last year, which was 17 percent higher than the overall loss recorded in 2022.

However, these underwriting losses were offset by net income investment income of $23.4 billion for 2023, which was 26 percent higher than a year earlier. While this development was a positive, it does not eliminate the pressure being felt by insurers who are grappling with higher reinsurance costs and in some cases, regulator resistance or delays in gaining rate increases.

“Many insurers are receiving rate increases, but there has been pushback,” said Lauren Magro, financial analyst, AM Best. “Insurance regulatory regimes differ by state, with some more conservative than others, leading to approval and implementation delays.”

For AM Best-rated mutuals, there has been a notable increase in the volume of gross premiums written since 2021. Costs for reinsurance began rising before inflationary pressures took hold in the latter part of that same year. Insurers reacted swiftly, and their primary goal was to attain appropriate pricing to cover higher exposures; this ultimately drove a 9 percent increase in net premiums written (NPW) in 2022. In 2023, NPW rose by just under 13 percent, marking the highest growth in premium for the mutual segment over the past decade.

“Insurers continue to pursue rate adequacy, with many looking to implement additional rate increases in the second half of 2024, and this trend likely continuing into 2025,” Magro said.

Policyholders’ surplus at the end of 2023 for the US P&C mutual segment was just under $400 billion, up from 2022, but still lower than in 2021. Most of the change in surplus in 2023 was driven by the bounceback in the equity market, which reported unrealised capital gains of more than $18 billion from 2022 to 2023.

For more news from the American Property Casualty Insurance Association (APCIA) click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.