According to a recent report from AM Best, a credit rating agency specialising in the insurance industry, US property and casualty (P/C) mutual insurance companies have used investment income to help cushion the financial impact of weather-related challenges, which have caused fluctuations in underwriting performance.
The latest Best’s Market Segment Report, titled “US Property/Casualty Mutual Insurers Resilient Despite Perpetual Volatility,” highlights that in 2023, the US property and casualty (P/C) mutual insurance sector faced significant challenges.
These included persistent inflation, elevated costs for traditional losses, and another year of severe weather-related events.
As a result, pure losses surged nearly 15% compared to the previous year. The sector reported an underwriting loss of $36.6 billion for 2023, a 17% increase from the 2022 loss.
Despite these underwriting losses, the sector benefited from net investment income of $23.4 billion in 2023, which was 26% higher than the previous year.
Although this investment income provided some relief, insurers continue to face pressure from rising reinsurance costs and, in some cases, delays or resistance from regulators regarding rate increases.
“Many insurers are receiving rate increases, but there has been pushback,” added 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 mutual insurers, there has been a significant increase in gross premiums written (GPW) since 2021. Reinsurance costs began to rise before inflationary pressures emerged later that year.
Insurers responded quickly, focusing on achieving adequate pricing to address higher exposures, which led to a 9% increase in net premiums written (NPW) in 2022. In 2023, NPW grew by nearly 13%, representing the highest growth in premiums for the mutual segment in 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 continued.
At the end of 2023, the policyholders’ surplus for the US P/C mutual segment was just under $400 billion.
This figure represents an increase from 2022 but remains below the level seen in 2021. The rise in surplus in 2023 was largely due to a rebound in the equity market, which generated unrealised capital gains exceeding $18 billion from 2022 to 2023.
Over the past five years, mutual insurers’ investment allocations have shown some variation. Bonds have consistently made up about 60% of their portfolios annually.
Stocks have represented between 19% and 23%, reflecting a generally conservative approach to investing across the industry, though individual investment strategies may differ based on insurers’ risk preferences.
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