Despite Catastrophe-Driven Underwriting Loss for P/C Industry, Insurers Still Able to Grow Surplus

AM Best is estimating an underwriting loss for the U.S. property/casualty (P/C) insurance industry in 2021, driven by above-average catastrophe losses, increased secondary perils and a rebound in auto frequency. However, given carriers’ solid risk-adjusted capitalization and persistent underwriting and pricing discipline, the industry was able to limit losses and generate surplus growth.

Source: AM Best | Published on February 25, 2022

In its annual Review & Preview Best’s Market Segment Report, "P/C Industry Maintains Solid Capital Despite Increased Challenges in 2021," AM Best states that with the catastrophe losses and a return to more-normalized losses in the auto line, the P/C industry’s combined ratio likely will deteriorate by three percentage points, to 101.8 from 98.8, in 2021. The report notes that many of the same challenges insurers encountered in 2021 will continue to impact results in 2022, with higher inflation further pressuring results in all P/C segments.

"Frequency and severity trends for most lines of P/C business will remain elevated in 2022 and likely will counterbalance the benefit of favorable pricing and modestly lower catastrophe losses," said Michelle Baurkot, director, AM Best. "If economic pressures dampen pricing, or if catastrophes result in escalating losses owing to inflation, or if more dangerous strains of COVID-19 emerge, the combined ratio may trend higher."

Other highlights from the report include:

  • Increases in investment income and capital gains helped to offset an estimated underwriting loss of 15.7 billion in 2021. Despite expected declines in pretax operating income and net income, P/C insurers were able to increase policyholders’ surplus by 7% to top $1 trillion.
  • Industry reserves at year-end 2021 are estimated to be $4.6 billion stronger than those reported at year-end 2020, making 2021 the second-straight year of reserve strengthening for the industry.
  • With many key P/C lines of business unprofitable in 2021, including private passenger auto and homeowners, the industry’s loss ratio for 2021 is projected to be 63.5, compared with 59.4 in 2020, reversing a downward trend seen since 2017.
  • Although investment returns in 2021 were affected by COVID-19 and its impact on global bond rates, they benefited from stronger equity markets as compared with the prior year. As a result, the industry’s net investment income is expected to increase by 5.5% to $56.1 billion in 2021.

AM Best currently has a stable outlook on the overall personal and commercial lines segments of the P/C industry, and expects each segment to maintain sufficient capital to withstand significant market impacts like those experienced in 2021. At the same time, the reports notes that each segment faces a number of challenges, such as a higher frequency and severity of catastrophe events and secondary perils; growing inflationary pressures and supply-chain disruptions; and pending judicial, regulatory, and legislative actions that could affect the ultimate cost of certain liability coverages significantly.

To access the full copy of this report, which includes AM Best’s market segment outlooks for individual P/C lines of business, please visit