Key financial results for private U.S. property/casualty insurers significantly worsened in 2022 from a year earlier, according to preliminary results from global analytics provider Verisk and the American Property Casualty Insurance Association (APCIA).
The industry recorded a net underwriting loss for 2022 of $26.9 billion, more than six times the $3.8 billion underwriting loss in 2021. The underwriting loss in 2022 was the largest the industry has seen since 2011.
“The insurance industry is being hammered by increasing input costs, natural catastrophes, legal system abuse, and resistance in some states to adequate rates,” said Robert Gordon, senior vice president, policy, research & international for APCIA. “Insurers suffered a 14.1% increase in incurred losses and loss adjustment expenses, contributing to a more than $76 billion contraction in insurers’ surplus at a time when loss exposures are rapidly growing. In 2023, insurers are faced with a significant challenge to close the rate gap in order to meet their growing cost of capital.”
Policyholders’ surplus recovered somewhat to $952.4 billion from Q3 2022’s $911.7 billion total, but still remains below that of year-end 2021 driven primarily by the large amount of unrealized capital losses accrued during 2022. Insurers’ rate of return on average policyholders’ surplus, a measure of overall profitability, declined to 4.2% in 2022 from 6.4% in 2021.
Earlier this month, AM Best reported similar findings. 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.
The preliminary results outlined in the table below are consolidated estimates based on annual statements filed by insurers with insurance regulators. The results are based on about 94% of all business written by U.S. property/casualty insurers, Verisk and APCIA said.
“Hurricane Ian and the effects of inflation resulted in major losses for property insurers last year, while accident severity continued to plague personal and commercial auto lines,” said Neil Spector, president of underwriting solutions at Verisk. “To remain profitable in these challenging times, many insurers are looking for new ways to reduce expenses, increase efficiencies, and enhance the customer experience. And they’re finding help from an ecosystem of advanced technology and analytics that is growing every day.”
Topics USA Carriers Profit Loss Underwriting Property Casualty
FAQs
“Insurance underwriting risk” is the risk that an insurance company will suffer losses because the economic situations or the occurring rate of incidents have changed contrary to the forecast made at the time when a premium rate was set.
What is the meaning of underwriting in insurance? ›
Insurance underwriting is the process of evaluating a risk to determine if the insurance company will insure it and, if yes, then pricing it. Underwriting began as a manual process based entirely on developed acumen. Today, that process also involves the use of tools such as data analytics and artificial intelligence.
What is underwriting and pricing of insurance? ›
What is the underwriting process in insurance? Underwriting is the process insurers use to determine the risks of insuring your small business. It involves the insurance company determining whether your business poses an acceptable risk and, if it does, calculating an appropriate premium for your coverage.
Why is insurance underwriting important? ›
The underwriting of life insurance is a crucial part of the insurance sector because it helps insurance companies balance their financial stability with the needs of their policyholder. By doing this it makes sure that people get insurance that truly reflects their risk profiles and financial situations.
What is the most important factor in underwriting? ›
The most critical factor in underwriting your policy is your current health. If you have a severe health condition, the likelihood of premature death increases. The amount of coverage you can afford may be less in that case.
What are the three sources of underwriting risk in the P&C industry? ›
The three sources of underwriting risk in the PC industry are (a) unexpected increases in loss rates, (b) unexpected increases in expenses, and (c) unexpected decreases in investment yields.
What is an example of underwriting in 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.
What does P&C insurance include? ›
Property and casualty insurance is a broad insurance, which includes coverage to your structure, property and belongings in the event of vandalism, theft, and more.
What are the disadvantages of underwriting? ›
Traditional underwriting disadvantages:
Time-consuming and resource-intensive. Prone to human error and bias. Limited by the availability of underwriters and their expertise.
How do you calculate underwriting? ›
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.
Insurance underwriters are responsible for assessing risk and determining the cost of a policy. The underwriter will analyze the information given by an applicant, including their health, lifestyle, financial history and any other pertinent data that could affect the risk associated with them being covered.
What is the underwriting cost? ›
Underwriting expense is the (1) cost incurred by an insurer when deciding whether to accept or decline a risk and (2) expenses deducted from insurance company revenues (including incurred losses and acquisition costs) to determine underwriting profit.
How long does insurance underwriting take? ›
Next steps in the underwriting process
Underwriting can take as little as 24 hours but could last 4 to 6 weeks.
Why is insurance underwriting so stressful? ›
Underwriters often face tight deadlines to deliver policy decisions, driven by client expectations. The urgency to provide timely evaluations and communicate effectively with clients and brokers can result in work bleeding into personal time, disrupting work-life balance.
What is the underwriting risk in insurance? ›
What is Underwriting Risk? Underwriting Risk may refer to the likelihood of an insurance company suffering a financial loss due to their underwriting activities. Underwriting Risk is the risk that an insurance company will not be able to pay out claims or will have to pay out more than they have collected in premiums.
What is moral underwriting risk in insurance? ›
“Moral hazard” refers to the risks that someone or something becomes more inclined to take because they have reason to believe that an insurer will cover the costs of any damages. The concept describes financial recklessness.
What is the risk score underwriting? ›
Risk scores tell the underwriter where a business is on the risk distribution. A business with a score of 100 means it is in the riskiest 1% of businesses. A business with a score of 1 means that it is in the 1% of least risky businesses.
Who bears the risk in the underwriting process? ›
If the risk is not checked correctly, the insurance company will not be able to price the premium correctly. Due to this, the costs of extra risk will have to be borne by the other policyholders.
What are underwriting guidelines in insurance? ›
An insurance company uses a process called “underwriting" to decide (1) if it will offer an insurance policy to someone new and (2) if it will continue to provide insurance for someone who is already its customer. Each insurance company creates its own “underwriting guidelines" to help make these decisions.
