US Property and Casualty Challenges Amid Weather, Reinsurance, Inflation

In 2023, the US property and casualty (P/C ) sector faced significant challenges, leading to a net underwriting loss reaching a 10-year peak at $38 billion, according to a recent Best's Market Segment Report from A.M. Best.

The "US Property/Casualty: Weather, Reinsurance and Inflation Drive Results—Again" report from A.M. Best said despite this underwriting loss, the P/C industry managed to achieve a substantial pretax operating profit. This was attributed to higher investment yields and a consequent rise in net investment income. Best said the equity market gains in 2023 further strengthened balance sheets, helping the industry recover from the unrealized loss positions experienced in 2022, especially with a bullish market in the latter half of 2023.

The boost in investment returns offered some relief from the persistent challenges impacting the property and casualty sector's underwriting performance. The industry suffered approximately $65 billion in catastrophe losses in 2023. With only one hurricane making landfall in the United States, the vast majority of catastrophe losses in 2023 were from secondary perils, according to the report. Last year included a record 28 single catastrophe events that each eclipsed the $1 billion loss mark, according to the National Oceanic and Atmospheric Administration, Best said.

Since the beginning of 2022, personal lines insurers have aggressively sought rate hikes to better align with calculated rate needs, aiming for a turnaround in underwriting performance. However, obstacles like regulatory limitations, inflation, and increasingly severe weather events could impede this progress. Sharon Marks, director at A.M. Best, pointed out, "The increasing volatility from what have been known in the industry as secondary perils raises the question of whether they will have a more primary role going forward."

The private passenger auto segment has faced net underwriting losses for 3 consecutive years. Despite being a major line of property and casualty business, it has struggled. A.M. Best projects a personal lines premium growth of over 12 percent in 2023 and an additional 10 percent in 2024. The outlook for 2024 appears promising with expected improvements in underwriting and operating results for the property and casualty industry, supported by the ongoing profitability of commercial lines and better performance in personal lines, along with increased investment returns.

Commercial lines insurers reported strong underwriting results throughout 2023, and this trend is anticipated to continue. The sector is fueled by high net premiums earned following rate hikes in most of the major commercial lines. In terms of combined ratios for 2023, personal auto and homeowners ended at an estimated 110 percent, while commercial lines maintained a strong 97.1 percent. Overall, the property and casualty industry wrapped up the year with an estimated combined ratio of 103.7 percent.

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