Best’s Market Segment Report: Results Fluctuate for U.S. Property/Casualty Mutual Insurers Amid Elevated Losses

OLDWICK, N.J.--(BUSINESS WIRE)--
Although AM Best-rated property/casualty (P/C) mutual insurers grew premiums in 2021 and in the first half of 2022, elevated loss activity and equity market volatility so far this year has led to a notable drop in net income and a decline in policyholders’ surplus.

A new Best’s Market Segment Report, titled, “Results Fluctuate for Property/Casualty Mutual Insurers Amid Elevated Losses,” states that similar to the broader P/C market, mutual insurers continue to face market challenges, including rising inflation, supply chain shortages, active weather events and more costly reinsurance. In the first half of 2022, the population of P/C mutuals recorded negative net income following $12.0 of net income in the same prior-year period, as well as a $12.3 million underwriting loss. These results followed a year-over-year net income drop of 17.5% in 2021 and additional underwriting losses.

At the same time, net premiums written have continued to grow, as they have each year since 2010. Net premium growth in recent years has benefited from insurers placing a higher emphasis on rate adequacy, particularly in the personal auto lines as it has a disproportionate impact on the segment, and increasing reinsurance costs, which have been exacerbated by an elevated degree of weather-related events, specifically in the form of secondary perils.

“For the personal auto lines, the pandemic created a favorable financial shock and considerable improvement in incurred loss ratios in 2020,” said Lauren Magro, financial analyst, AM Best. “However, in 2021, the loss ratio deteriorated by 8.6 percentage points for private passenger auto liability and 16.5 points for auto physical damage, likely influenced by a return to normal frequency and a rise in severity due to inflation, supply chain pressures and labor shortages.”

The report notes that the homeowners’ loss ratio improved in 2021, but the improvement was more of a return to historically normal levels, and was not enough to offset the volatility in the personal auto line’s loss ratios.

At year-end 2021, P/C mutual insurers’ surplus stood at $422.3 billion, a 10% increase from the end of 2020, aided by positive equity market performance during the year. However, at the midpoint of 2022, surplus has dropped back to $381.3 billion, largely negating the previous year’s gain.

“Surplus growth is crucial for mutual companies, given their priority to reserve capital,” said Brian O’Larte, director, AM Best. “Based on these first-half results, 2022 is shaping up to be another challenging year for mutual insurers. Rate changes and pricing activity will remain a priority for mutual insurers.”

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=324053.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Lauren Magro
Financial Analyst

+1 908 439 2200, ext. 5181

[email protected]

Christopher Sharkey
Manager, Public Relations

+1 908 439 2200, ext. 5159

[email protected]

Brian O’Larte

Director

+1 908 439 2200, ext. 5138

[email protected]

Jeff Mango
Managing, Director,

Strategy Communications

+1 908 439 2200, ext. 5204

[email protected]

Source: AM Best