Reflecting on the Past Year and Anticipating the Future in Insurance

2023 was a relatively uneventful year for insurers, which is actually a positive thing for them. Insurers and their shareholders prefer consistent and predictable results over sudden shocks. Stocks of property & casualty insurance companies performed well in 2023, with the S&P Insurance Stock Index rising by 6.4 percent. Although this was lower than the 24 percent return of the S&P 500, it still outperformed the broader stock market which saw an 8 percent growth. The financial results of the property & casualty insurance industry were strong, with underwriting losses of $19.2 billion but offset by $75 billion in investment income, leading to a 6.5 percent margin after taxes.

There were two surprises in the 2023 numbers. The first was a decrease in the expense ratio to 24.9 percent, a significant improvement from previous years. The lower expense ratio reflects insurers’ efforts to operate more efficiently. The second surprise was $49.9 billion in net realized capital gains at Berkshire Hathaway, driven by their unique investment portfolio heavily concentrated in stocks..

Double-digit rate increases in homeowners’ insurance were due to multiple disasters in 2023, while automobile insurance saw rate hikes driven by rising repair costs. Insurers also increased cessions to reinsurers to protect their balance sheets.

Chicken Little and Dr. Pangloss

The stable and profitable results of the 2023 insurance industry contradict extreme views that the industry is either collapsing or excessively profitable. Insurers face various risks and are here to stay, operating on relatively slim margins compared to other industries.

What, Me Worry?

Severe thunderstorms in 2023 caused significant economic losses, highlighting the role insurers play in enabling recovery after disasters. Insurers are focusing on AI, industry image, emerging risks, and tort trends in 2024 to stay ahead of the curve and manage risks effectively.