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Structural upheaval of a centuries-old industry does not occur willingly or painlessly, but that does not make it any less necessary.

Following two years of dismal underwriting results in certain key coverage categories, some US property and casualty insurers have been forced to make difficult decisions about their form of organization, the markets and business lines in which they operate, expense structures, client retention, and, in a few cases, their continued independence.

Stubbornly persistent loss-cost inflation due to factors such as rising motor vehicle repair costs in the auto insurance business and ever-higher jury verdicts and legal settlements in various casualty lines come as a changing climate injects significant volatility into property insurance results. The availability of coverage in some catastrophe-prone geographies has usurped the affordability of coverage as a primary concern. This was true not only for policyholders but carriers themselves as reinsurers dramatically dialed back property catastrophe capacity for small and regional insurers that possessed a combination of high geographic concentration in recently loss-affected areas and lower levels of balance sheet strength.

Yet even as a growing number of insurers have taken steps to shore up their solvency and/or financial flexibility through corporate reorganizations, a scaling back of the scope of the products they offer and/or the geographies they serve, the broad-based reunderwriting of in-force books of business and/or the programmatic filing for substantial rate increases, many others have thrived amid the fallout.

Carriers with minimal direct exposure to loss-riddled personal lines business have generally outperformed those with significant concentrations of private auto, homeowners and/or farmowners business.

While direct premiums written growth in the commercial lines slowed to 7.0% in 2023 from the double digits in 2021 and 2022, carriers continued to benefit from what they widely considered to represent a hard market. Favorable development of loss reserves for prior accident years in the workers’ compensation business largely mitigated the reserve building in other commercial casualty lines as affected insurers attempted to address the effects of social inflation.

Residential and commercial property insurers have benefited from material rate increases and more aggressive enforcement of policy terms and conditions so long as they were fortunate enough to avoid one of the many natural perils that have affected various regions of the country. A relatively benign 2023 North Atlantic hurricane season allowed Gulf Coast carriers to replenish their surplus.

As such, the industry’s 2023 combined ratio of 101.7% — and, in particular, our projection for a return to profitability with a 2024 combined ratio of 99.2% — imply a less-challenging environment than the one some carriers are experiencing. But our top-line projection for 2024 direct premiums written growth of just short of 10.0%, not far beneath 2023’s best-in-21-years growth rate of 10.4%, in a year where economists are projecting only modest expansion in US gross domestic product provides an inkling of the difficulties confronting some of them.

Bifurcating the industry by ownership structure offers an even clearer view: the cumulative 2021 through 2023 combined ratios for mutuals, stock insurers that are part of mutual insurance holding company structures, reciprocal exchanges and certain other similarly organized insurers of 107.9%, excluding policyholder dividends, was 11.3 percentage points higher than the rest of the industry.

Mutuals tend to be more concentrated in the embattled home and auto business than stock insurers, conferring upon them the misfortune of experiencing the worst of the current cycle. But rate alone may be insufficient for them to overcome the depths of the challenges they face.

Our outlook anticipates greater market-share concentration among the largest private auto writers in the coming years as data, analytics and economies of scale remain critically important in a commoditized business. Conversely, we expect more fragmentation of the homeowners market as national carriers trim back their exposure to loss-prone markets.

In the commercial lines, specialty writers should continue to expand their share of the market, albeit not at the torrid pace of the last several years. Risk-selection will grow in importance as the market inevitably begins to soften and new technologies bring out novel perils.

All told, our outlook suggests a period of extended underwriting stability even as underlying business processes and operating structures remain in flux.

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