2023 was an unremarkable year for insurers. And that’s good. Insurers and their shareholders prefer dull, predictable outcomes to unexpected, volatile shocks. Stocks in property and casualty insurers performed relatively well. In 2023 the S&P Insurance Stock index rose by 6.4 percent. Although below the return of 24 percent for the S&P 500, but without the splendor SevenThe broader stock market recorded growth of 8 percent. The property and casualty insurance industry’s financial results were healthy. The industry lost money on underwriting ($19.2 billion) with a combined combined ratio of 101.7 percent, but an estimated $75 billion in capital gains contributed to pretax income of $55 billion (excluding the Berkshire Hathaway surprise described below), which corresponds to a margin of 6.5 percent. After $10.9 billion in federal income taxes, the margin was 5.2 percent.
There were two surprises in the reported figures for 2023. The first was a decline in the expense ratio, which stood at 24.9 percent, well below the levels of 27.2 percent and 27.5 percent in 2019 and 2020, respectively. For many decades, the insurance industry has struggled to bring the stubbornly high expense ratio down from the 30 percent limit, so the 2023 figure was a notable result. The lower expense ratio reflects insurers working more efficiently and not allowing costs to rise with premium growth. In 2023, net premiums earned increased 8.9 percent from $746 billion to $813 billion. The premium growth was mainly due to tariff increases, especially in the private customer business – private car and household contents insurance.
The second surprise in the reported 2023 numbers was net realized capital of $49.9 billion Wins at a subsidiary of Berkshire Hathaway, the National Indemnity Company. $49.9 billion may seem like an exceptionally large capital gain, but Berkshire Hathaway is no ordinary company – it has $381 billion in assets. Unlike other insurance companies whose investment holdings consist primarily of bonds, Berkshire Hathaway’s investment portfolio is heavily comprised of common stocks, with shares valued at $316 billion in 2023.
The double-digit rate increases in household contents insurance were due to the occurrence of numerous disasters during the year. Home insurance results in particular were impacted by record numbers of natural disasters Disasters. In 2023, the number of disasters that caused at least $1 billion in damages reached a record high of 28, well above the previous record of 22 in 2020. Auto insurance rate increases were driven by sharply increased vehicle costs -Incurred repair costs for parts and labor that were in excess of the CPI.
The insurance industry protected its balance sheet in 2023 and shared its pain with higher cessions to reinsurers. In 2023, insurers ceded $100.4 billion to reinsurers, a significant increase from $73.0 billion in 2019 and $73.5 billion in 2020.
Chicken Little and Dr. Pangloss
The insurance industry’s good results in 2023, with modest operating profits and a stable surplus estimated to remain around $1 trillion, should disabuse those who hold one of two extreme views about the industry – that the sky is falling and that Insurance industry collapses Danger on the other hand, that the insurance industry is swimming in it Checkout, fat, rich and greedy. Neither view is borne out by the facts. U.S. insurers, many of which have been in business for more than a century, face risks of all kinds. They take risks and have no prospect of giving up their craft. As known risks become more severe and new risks emerge, insurers planning for another 100 years will continue to play their role as risk absorbers. The characterization of insurers as rich as Standard Oil is equally inaccurate. As we have seen, the insurance industry has a relatively low margin.
What, I’m worried?
The extent of destruction from severe thunderstorms in 2023 was among the most striking developments of the year. In the United States, severe convective storms caused $66 billion in economic losses, $33 billion of which were insured. This demonstrates the critical role insurers play in enabling individuals and businesses to recover from loss. It is also a warning that unexpected, unforeseen damage will occur and will test the ability of insurers to perform. Topics insurers are working on in 2024 include AI, industry image, new risks and tort trends.
AI, like other new technologies, can have both positive and negative impacts on insurers. To the extent that it can automate routine processes, it can improve the insurer’s efficiency and reduce the historically low expense ratio even further. At the same time, AI in the hands of criminals can be a tool that criminals use to manipulate photos and voices to obtain sophisticated, high-tech insurance Fraud.
The insurance industry Picture Could use some improvement. In Rankings Of the country’s most admired companies, only one insurer consistently makes the top 10 or top 25 – Berkshire Hathaway, a company that is more of a conglomerate than a pure insurer. “Crusader” consumer activists and personal injury attorneys regularly appear on posters denigrate insurance companies, which has made talent recruitment a pressing concern for the industry.
For decades, insurers have been paying close attention to substances that could trigger the “next asbestos”, i.e. asbestos-related respiratory diseases cost Insurers nearly $100 billion. In addition to studying the potential of chemicals like PFAS (Forever Chemicals) to cause disease, researchers and modelers are also examining the prospects for systemic risks, where losses in one sector ripple through the entire economy and spill over into other sectors of the economy. For example, the Great Recession of 2008 began as a subprime lending crisis and subsequently evolved into a banking crisis routers on Wall Street, where the Dow is 54 percent below its peak and the unemployment rate is rising sharpen to 10 percent in 2009.
The large number of extremely large court rulings in civil cases, including “nuclear “Verdicts exceeding $10 million” have resulted in large losses for liability insurers. Plaintiffs’ law firms use applied human psychology to win inflated verdicts. If this trend does not change, American companies could become embroiled in costly, meritless litigation, driving up the cost of goods and services. Abuse of lawsuits must be combated at the federal and state levels.
AI, reputational risk, new risks and tort trends are real, but they do not have to cause panic. At a recent insurance conference, a group of insurer executives were asked what keeps them up at night. None of the insurers reported excessive tremors related to any particular topic. Insurers encourage their customers to practice risk management. For insurers themselves, everything revolves around risk management. To the extent that both insurers and their customers implement sound risk management, insurers wear belts and suspenders. It may not be the best fashion look for a nondescript industry, but it’s good for insurance buyers, good for insurance providers and good for the economy.
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2024-03-18 13:36:34
www.insurancejournal.com
