Near $27B Underwriting Loss in 2022 Largest for U.S. P/C Insurers Since 2011 (2024)

FAQs

Near $27B Underwriting Loss in 2022 Largest for U.S. P/C Insurers Since 2011? ›

The U.S. P/C industry recorded a $26.5 billion net underwriting loss in 2022, according to the rating agency. Verisk and APCIA said U.S. P/C net income fell 33.6% to $41.2 billion in 2022, compared with 2021. The combined ratio deteriorated to 102.7% in 2022, from 99.6% in 2021.

Update: On March 25, AM Best published a tally of results based on statutory annual statements for P/C insurers received as of March 8, finding that 2023 underwriting losses came in at $21.2 billion–nearly $4 billion lower than the aggregate underwriting loss figure of $24.9 billion for 2022.

Inflation and unfavorable reserve development pushed the net incurred loss ratio to 79.8% in 2022, considerably worse than the previous high of 70.9% in 2000 and the 67.6% seen in 2021.

The carrier's loss incurred when claim. A bill that your health care provider sends to your insurance company after you receive health care services. costs plus all other carrier expenses exceed the amount collected in premiums.

The loss ratio formula is insurance claims paid plus adjustment expenses divided by total earned premiums. For example, if a company pays $80 in claims for every $160 in collected premiums, the loss ratio would be 50%.

The industry has seen sustained losses before, including between 2008 and 2012. But experts say the past decade is different because of climate change. As the planet warms and storms and fires grow more intense, the cost of disasters is increasing faster than insurers can afford.

Most costly disasters to the insurance industry worldwide 1900-2023. As of 2023, Hurricane Katrina - which struck the United States in August 2005 - remained the most expensive insured loss event since 1900, as it incurred insured losses amounting to over 100 billion U.S. dollars.

The loss rate is simply a measure of the amount the insurer pays for claims compared to their premium income. Insurance company losses are commonly combined with the cost ratio to create the combined ratio which enables insurance firms to measure their profitability overall.

A high loss ratio, above the ideal range, suggests inadequate underwriting, pricing, or risk management practices. This may result in a higher frequency or severity of claims, which can strain the company's financial resources and threaten its long-term sustainability.

Loss trending is the adjusting of historical losses to account for inflationary trends so that their value is in current dollar amounts.

Why is State Farm dropping customers? ›

State Farm said it is dropping policies across California for financial reasons and is ending coverage in areas with wildfire hazards, among other factors.

State Farm total revenue last year was $104.2 billion. State Farm said in a release that its unfavorable operating results came from "continued elevated claims severity and significant catastrophe activity," for both auto and homeowners insurance.

Insurance underwriters assume the risk involved in a contract with an individual or entity. For example, an underwriter may assume the risk of the cost of a fire in a home in return for a premium or a monthly payment.

Underwriting income is calculated as the difference between an insurance company's earned premiums and its expenses and claims. For example, if an insurer collects $50 million in insurance premiums over a year, and spends $40 million in insurance claims and associated expenses, its underwriting income is $10 million.

In the sectional title environment, a claims ratio of 35-55% is desirable to maintain stable premium rates. As commission and policy underwriting costs make up 30-40% of the premium, a loss ratio of 60% may result in a break-even position for the underwriting manager/insurer.

The combined loss ratio for the P&C industry improved by 0.9% from the year prior to 101.6% in 2023. Underwriting losses were driven by an increase in both the number and severity of climate events. Climate catastrophe losses accounted for about 8.7 points of the combined ratio in 2023 — up from 7.3 in 2022.

This result compared to an underwriting loss of $13.2 billion on earned premium of $74.3 billion in 2022. The change over 2022 reflects improvement in auto lines underwriting results which was offset by the significant increase in homeowners incurred catastrophe claims.

State Farm posted a net loss of $6.3 billion in 2023, driven largely by a "significant increase" in catastrophe claims by homeowner policyholders, the Bloomington-based company reported Thursday. That $6.3 billion net loss is actually an improvement from 2022, when it lost $6.7 billion.

The business of insurance, which once was stable and predictable, isn't that way anymore. Growth without sacrificing profitability is challenging, climate change is irrevocably impacting certain risk profiles, distribution needs have become truly omnichannel and customers expect products tailored just for them.

Allstate annual gross profit for 2022 was $13.105B, a 35.2% decline from 2021.