The first half of the year saw the property casualty insurance industry deal with significant headwinds, according to a new report from the American Property Casualty Insurance Association (APCIA).
The report said that mounting underwriting losses pushed property casualty insurers’ second quarter 2023 net income to the lowest level since 2011. Overall, the industry posted $400 million in after-tax earnings. Further, industry statutory capital and surplus grew 8.1 percent in the first half, fueled by $63.7 billion in increase in unrealized capital gains, primarily from unsold equity investments. That reverses a $101.8 billion net decrease in unrealized gains in the first half of 2022. Despite the surplus growth, the June 30 aggregate value of $1.04 trillion remains below the high-water mark of $1.05 trillion set at the end of 2021. This means that there is 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 APCIA, said.
Also, the study said that the first half combined ratio of 104.3 percent was 4.4 points higher than last year’s 99.9 percent. Further, the associated net underwriting loss through June 30 was $24.1 billion, compared with a $6.5 billion loss one year earlier.
APCIA estimates catastrophe losses of $30.7 billion for the second quarter and $38.4 billion for the first half of the year. A series of convective storms and a Northeast Winter storm contributed to the first half catastrophe losses, which were 18.2 percent higher than in 2022. Catastrophe losses accounted for 10.2 percentage points in the combined ratio for all lines. It should be noted that these numbers do not include early third quarter losses from the Maui wildfire and Hurricane Idalia, which are estimated at about $12 billion combined.
“In the U.S., catastrophe losses pushed what would otherwise have been a profitable quarter into underwriting loss territory,” Gordon said. “But it’s not just the weather that is impacting insurance marketplaces and consumers. Across the country, insurers are having to recapitalize after suffering from these historic losses as well as historic high economic inflation, legal system abuse, and worsening regulatory restrictions. Together these pressures have forced some insurers to rebalance their risk nationwide.”
APCIA reports that personal and commercial auto lines are experiencing significant loss cost pressures. Personal auto incurred losses have risen faster than the growth in premium volume, up 12.3 percent over 2022, with property losses up 10.7 percent and liability losses up 13.4 percent. Meanwhile, direct premium growth for all commercial lines in the first half of 2023 was 6.4 percent, down significantly from a 13.4 percent rise a year earlier.