Best’s Market Segment Report: US Property/Casualty Mutual Insurers Resilient Despite Perpetual Volatility

U.S. 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,” 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. These factors drove pure losses up by nearly 15% in 2023, compared with a year earlier. US P/C mutuals recorded an underwriting loss of $36.6 billion last year, which was 17% 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% higher than a year earlier. While this development was a positive, it does not eliminate the pressure being felt by insurers who are also 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 (GPW) 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% increase in net premiums written (NPW) in 2022. In 2023, NPW rose by just under 13%, 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 U.S. 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 bounce back in the equity market, which reported unrealized capital gains of over $18 billion from 2022 to 2023.

Among mutuals, investment allocations have varied over the past five years, with bonds representing the majority, averaging roughly 60% annually, according to the report. Stocks have made up anywhere between 19% and 23% of portfolios, indicating that as a segment, investment portfolios remain conservative overall for the industry; however, this may vary depending on insurers’ risk appetites.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=346870.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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