US P/C sector shows resilience amid challenges in 2023, says AM Best

AM Best’s recent market segment report highlights the challenges faced by the U.S. property and casualty (P/C) sector in 2023, including severe weather-related losses, persistent inflation, and rising reinsurance prices, resulting in a net underwriting loss of $38 billion.

Despite this, the P/C industry managed to achieve a substantial pretax operating profit, thanks to higher investment yields and increased net investment income. The industry also benefited from gains in equity markets, partially recovering from unrealized losses in 2022.

The report underscores the significant impact of climate change and secondary perils in 2023, leading to a record number of billion-dollar catastrophe events in the U.S. market.

According to AM Best, “approximately $65 billion in catastrophe losses impacting the U.S. P/C industry’s underwriting results.” The vast majority of these losses were attributed to secondary perils.

A fundamental shift in reinsurance behaviour and risk appetites has placed a heavier burden on primary carriers, marked by higher attachment points and increased reinsurance pricing.

Despite these challenges, the sector found relief in higher investment yields and record-high net investment income, masking sizable underwriting losses.

While commercial lines insurers benefited from up-pricing and effective risk selection, the sector’s overall performance was dampened by weather-related losses and a further decline in personal lines.

Sharon Marks, director at AM Best, highlights, “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.”

Looking ahead, AM Best states that they expect “improved underwriting and operating results for the P/C industry in 2024”.

According to the report, this is owed to the continued profitability of commercial lines, coupled with anticipated improvements in personal lines and investment returns.

Moreover, higher yields and strong cash flow are expected to contribute to the sector’s recovery, offering hope for insurers navigating an increasingly volatile landscape.

As insurers brace for continued challenges posed by climate change and evolving reinsurance dynamics, adapting to these shifts will be crucial for long-term resilience and sustainability in the industry.

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