US P/C Insurers Investment Income

June 17, 2024 by

The U.S. property/casualty insurance segment’s net investment income hit a record $73.9 billion in 2023, bolstered by the higher interest rate environment, according to a new AM Best report.

The Best’s Special Report, “U.S. P/C Insurers Achieve Record Investment Income in 2023,” reported a 1.4% increase in net investment income improvement over the previous year.

Net investment income in 2022 was skewed by a $10.8 billion intercompany distribution at a very large reinsurer, which flowed through net investment income, AM Best said.

Adjusted for this one-time transaction, the growth in the industry’s net investment income would have been nearly 20% in 2023, the rating agency added.

The growth in investment income — an important factor in making up for poor underwriting results as a result of increased weather and catastrophe events — helped to partially offset unfavorable performance in lines of business such as auto and homeowners.

The U.S. homeowners insurance segment posted its worst underwriting results in over a decade in 2023, according to an analysis by S&P Global Market Intelligence.

The net combined ratio for the homeowners business, excluding policyholders’ dividends, was 110.5 in 2023, the highest since 2011 (121.9).

Auto wasn’t much better. Auto insurers posted a less-than-desirable combined ratio of 104.9 in 2023, but the result was about 7 points better than in the historically bad year of 2022, according to S&P Global Market Intelligence.

“Aggregate net underwriting income has been volatile in the last 10 years — and often negative across the industry — and so investment income remains vital to earnings,” said Helen Andersen, industry analyst, AM Best. “Property/casualty carriers have had to balance their risk appetites with the need for higher returns when deciding on investment strategies in a rapidly changing economic landscape.”

AM Best said the P/C industry has shifted to riskier assets (also known as alternative investments like real estate, hedge funds and/or private equity interests) in its portfolio in the search of higher yields, but the percentage of Schedule BA assets within the total portfolio dropped to 6.6% in 2023 from 8.1% in the previous year.

At the same time, the share of total stocks increased dramatically in 2023, to $667 billion from approximately $600 billion.

Stocks as a percentage of surplus increased by about 10 percentage points, to 70%, as growth in stock holdings outpaced growth in surplus.