Despite Losses, US Property-Casualty Insurers Added to Surplus in 2021

While A.M. Best is anticipating a 2021 underwriting loss for the US property-casualty insurance industry, the rating agency said insurers' solid risk-adjusted capitalization and persistent underwriting and pricing discipline allowed the industry to limit losses and generate surplus growth.

In its Best Market Segment Report, "P/C Industry Maintains Solid Capital Despite Increased Challenges in 2021," Best points to above-average catastrophe losses, increased secondary perils, and a rebound in auto loss frequency as factors contributing to the year's underwriting loss. The US property-casualty insurance industry's combined ratio will likely deteriorate to 101.8 percent for 2021 from 98.8 percent a year earlier, Best said.

The report notes that many of the same challenges insurers encountered in 2021 will continue to have an impact on their results in 2022, with higher inflation putting additional pressure on results in all property-casualty segments.

"Frequency and severity trends for most lines of P-C business will remain elevated in 2022 and likely will counterbalance the benefit of favorable pricing and modestly lower catastrophe losses," Michelle Baurkot, director at A.M. Best, said in a statement. "If economic pressures dampen pricing, or if catastrophes result in escalating losses owing to inflation, or if more dangerous strains of COVID-19 emerge, the combined ratio may trend higher."

Increases in investment income and capital gains in 2021 helped the US property-casualty insurance industry offset an estimated $15.7 billion underwriting loss, Best said. In addition, industry reserves at year-end 2021 are estimated to be $4.6 billion stronger than those reported at the end of 2020, making 2021 the second straight year of reserve strengthening for the US property-casualty insurance industry.

While 2021 investment returns were affected by the COVID-19 pandemic and its impact on global bond rates, they benefited from stronger equity markets in comparison with 2020, Best said. The US property-casualty insurance industry's net investment income is expected to show a 5.5 percent increase in 2021 to $56.1 billion.

A.M. Best currently has a stable outlook for both the personal and commercial lines segments of the property-casualty insurance industry. Still, the Best report notes that the industry faces a variety of challenges such as the increasing frequency and severity of catastrophe events and secondary perils; growing inflationary pressures and supply chain disruptions; and pending judicial, regulatory, and legislative actions that could have a significant impact on the ultimate cost of some liability coverages.

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