Underwriting Losses Take Toll on US P-C Insurers' Net Income

US property-casualty insurers saw mounting underwriting losses push their second-quarter after-tax net income to the lowest level since 2011, according to the American Property Casualty Insurance Association (APCIA).

The APCIA reported that the sector posted $8.9 billion in net income during the first half of 2023, representing a pre-tax return on revenue of just 2.3 percent and an after-tax return on statutory surplus of 1.8 percent.

US property-casualty insurers' first-half combined ratio of 104.3 percent was 4.4 points higher than last year's 99.9 percent, the APCIA said. The associated net underwriting loss through this year's first 6 months was $24.1 billion, compared with a $6.5 billion loss a year earlier.

The APCIA estimated industry catastrophe losses of $30.7 billion for this year's second quarter and $38.4 billion for the entire first half of 2023. That doesn't include early third-quarter losses from the Maui wildfire and Hurricane Idalia that are estimated at about $12 billion combined.

A series of convective storms and a winter storm in the Northeast contributed to the first-half catastrophe losses that were 18.2 percent higher than in 2022, the APCIA said. Catastrophe losses accounted for 10.2 percentage points in the combined ratio for all lines, with the impact of catastrophes on homeowners and commercial property lines much greater.

US property-casualty insurers' statutory capital and surplus grew 8.1 percent during this year's first half, driven by a $63.7 billion increase in unrealized capital gains, primarily due to unsold equity investments, the APCIA said. That reversed a $101.8 billion net decrease in unrealized gains during the first half of 2022.

Despite that surplus growth, the aggregate value of $1.04 billion at June 30 remained below the industry's high-water mark of $1.05 billion at the end of 2021, the APCIA said, meaning that the industry has less capital and surplus per unit of risk exposure today than there was 18 months ago.

"While the aggregate industry balance sheet is strong enough to meet its contractual commitments and obligations to consumers and businesses, the ever-increasing challenges from claims cost and expense increases, extreme weather events, legal system abuse, and ongoing regulatory resistance to rate adequacy in a few jurisdictions, continue to have significant negative financial consequences for insurers," Robert Gordon, senior vice president, policy, research, and international for the APCIA, said in a statement.