U.S. P&C Insurance Sector Records Worst Underwriting Loss in Decade

Severe weather losses, reinsurance costs and persistent inflation drive U.S. P&C insurer results in 2023
By: | March 7, 2024
financial results

The U.S. property/casualty (P&C) insurance sector experienced its worst underwriting loss in a decade in 2023, due to severe weather-related losses, persistent inflation, and rising reinsurance pricing, according to rating agency AM Best.

Despite a $38 billion underwriting loss for the year, the P&C industry managed to record a substantial pretax operating profit in 2023, thanks to higher investment yields and a corresponding increase in net investment income. The industry’s balance sheets in 2023 were strengthened by gains in investment income from the equity markets, enabling the recapture of some unrealized loss positions from 2022 due to a bull market run in the second half of 2023, Best stated.

The Best report estimates that catastrophe losses of approximately $65 billion contributed significantly to the U.S. P&C industry’s underwriting loss.

Of note, the majority of these losses in 2023 were from secondary cat perils, with only one hurricane making landfall in the United States. Secondary perils are ones that can happen relatively frequently, such as severe convective storms, floods and wildfires, but historically have generated low- to medium-sized losses. Last year saw a record 28 single catastrophe events, each surpassing the $1 billion loss mark, according to the National Oceanic and Atmosphere Administration (NOAA).

“The question arises whether they will have a more primary role going forward,” commented Sharon Marks, director at AM Best, on the increasing volatility from secondary perils.

In commercial lines, insurers reported robust underwriting results throughout 2023, a trend expected to continue, driven by strong net premiums earned from prior year rate increases for most major commercial lines, according to Best.

On the personal lines side, Best observed that insurers have been aggressively pursuing rate increases since early 2022, aiming for an underwriting turnaround. However, regulatory constraints, inflationary pressures, and more frequent and severe weather-related events could impede this progress.

Read more and how to access the full report on AM Best’s website.

The R&I Editorial Team can be reached at [email protected].

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