U.S. P/C Industry Underwriting Loss $20B+ Higher in 2022; Reserve Releases Fall

According to data compiled by AM Best, the U.S. property/casualty industry recorded a $26.5 billion net underwriting loss in 2022, $21.5 billion more than the $5 billion underwriting loss the rating agency tabulated for 2021.

The P/C results, which the rating agency characterizes as preliminary, were presented in a Best’s Special Report titled “First Look: 12-Month 2022 US Property/Casualty Financial Results.”

The combined ratio linked to the $26.5 billion figure, at 102.7, is actually better than an estimated 104.0 full-year 2022 that the rating agency had forecast a few weeks ago. The earlier estimate, set forth in AM Best’s P/C Review & Preview report, was derived from analytical estimates, judgment and projections based on results through third-quarter 2022. The figures published yesterday were instead derived from companies’ annual statutory statements received as of March 9, 2023, representing an estimated 96 percent of the total P/C industry’s net premiums written.

While the current report shows that total net written premiums climbed 8.4 percent, it reveals some sobering numbers, including details behind underwriting loss and a breakdown of a $68.7 billion (6.7 percent) decline in policyholders surplus.

• The personal lines segment, specifically the auto lines of business, was primarily responsible for the decline in underwriting results.
• While catastrophe losses contributed 6.9 points to the 2022 combined ratio, that was actually lower than contributions of 7.9 and 7.7 points in 2020 and 2021.
• Favorable loss reserve development, at $3.8 billion, shaved a half-point off the 2022 combined ratio, but it was the lowest amount of reserve releases recorded in five years. Prior releases ranged from $5.7 billion in 2021, a 0.9 point benefit to the combined ratio, to $10.8 billion in 2018, or 1.9 points.
• The fivefold jump in underwriting losses and an 83 percent drop in realized gains were two of the drivers of a 31 percent drop in bottom-line net income—to $42 billion in 2022 compared to $61.2 billion in 2021.
• While a jump in investment income helped contain the fall in pre-tax operating income to just 15 percent, AM Best reported that more than 70 percent of a $15 billion increase in investment income could be traced to a $10.8 billion distribution of cash and Treasury bills received by Columbia Insurance Company.
• Industry surplus declined to $951.9 billion at year-end 2022. While net income, contributed capital and other gains added to surplus, stockholder dividends and changes in unrealized losses more than offset the additions. In total, stockholder dividends were $35.3. Changes in unrealized losses for just National Indemnity Company, Columbia Insurance Company and State Farm Mutual totaled $136.6 billion, the report says.

The report includes charts showing five years of underwriting ratios (including loss, expense, prior-year reserve, A&E and cat components), net income components, surplus changes, and net written premiums by annual statement line of business.