Although rated U.S. property/casualty mutual insurance companies saw notable premium growth in 2022, carriers still recorded a $31 billion underwriting loss due to higher claims costs amid elevated inflation, according to a new AM Best report.
The new Best’s Market Segment Report, “Secondary Perils, Inflation Underlie Volatile Operating Results for Mutuals,” notes that effects of inflation were felt predominantly on mutual insurers’ personal automobile and property lines, as claims costs throughout 2022 and into 2023 continued to rise. Many adjusted but the rapid onset made it difficult for the rated mutuals to avoid the impacts. However, amid the economic challenges, mutuals largely were resilient in 2022, as many shifted their focus from growth to profitability by implementing aggressive rate changes, ensuring adequate insurance-to-value and refining risk selections through tighter underwriting guidelines.
Benefiting from insurers’ greater focus on rate adequacy, net premiums written by the rated mutuals grew by 9% in 2022, more than in any year in recent history, according to the report. “Pricing was a top priority for mutuals, which generally rely on sound operating earnings to build capital,” said Lauren Magro, financial analyst, AM Best. “Given ongoing rate actions to address economic inflation, premiums are likely to keep rising. However, there will be some offset from reinsurance costs, which are expected to stay elevated over the near term.”
P/C mutuals reported a combined ratio of 109.9 in 2022, with rising inflation a leading factor, along with higher natural catastrophe losses, secondary peril losses and social inflation; the increased premium levels led to a slight decline of the underwriting expense ratio.
“Some mutual insurers are shifting toward commercial lines to diversify their exposures,” said Brian O’Larte, director, AM Best. “Over the past five years, rated mutuals have lowered their exposures to the personal lines by more than three percentage points. Though still exposed to severe weather, the commercial lines side tends not to fluctuate as much as personal lines would in the event of a catastrophe.”
The report also notes that for the first time in the last decade, mutuals’ policyholder surplus declined in 2022, as the volatility on the underwriting side was joined by a decline in the equity markets, making it difficult for insurers to grow surplus. Despite these headwinds that have plagued the entire property/casualty industry over the past year, AM Best views many rated mutual companies as financially strong. Additionally, mutuals’ market share has changed just slightly over the past decade, indicating the segment’s operating philosophy and core values, with the strong focus on long-term stability from a financial and operational perspective.
To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=335641 .