Underwriting Results for Life & Personal Line U.S. Insurance Companies

Underwriting results for personal lines-focused US insurers worsened during the second quarter of 2023 as natural catastrophes and inflationary pressures weighed on results. US life insurers’ aggregate interest maintenance reserves fell in the second quarter of 2023 to the lowest level since 2011, but recent regulatory changes signal that some relief is on the way.

According to S&P Global Market Intelligence, an aggregation of results for insurance subsidiaries that write at least 70% of their direct premiums within personal lines — personal auto insurance, homeowners and farmowners — showed a net combined ratio growing to 114.9% in the second quarter of 2023 compared to 112.4% in the prior year period, according to a review of quarterly regulatory statements.

Carriers that are slow to address the challenges ahead or do not have the means, expertise, or technological capabilities to keep pace with changes in the segment likely will face ratings pressure.

Insurance profitability would be reducing

In an effort to help return the insurer to profitability, Beinsure Media Farmers announced on Aug. 28 that it would be reducing its workforce by about 11%, or 2,400 employees.

Farmers CEO Raul Vargas said the industry is facing macroeconomic challenges and the insurer “must carefully manage risk and prudently align our costs with our strategic plans for sustainable profitability.” Farmers’ annual combined statement shows it paid $2.62 billion in total salaries during 2022, the most recent available breakout, or about 15% of the insurer’s net premiums during the year.

State Farm’s net combined ratio was 116.7% during the second quarter, including the second-highest expense ratio among the companies in the analysis at 21.7%. The insurer’s total salary expense was $5.02 billion in 2022, which equates to 6.8% of its $74.34 in net premiums earned.

Legacy insurance companies with robust historical datasets coulddevelop valuable underwriting capabilities if used properly. According to <a href=https://beinsure.com/>Beinsure Media</a>, groundspeed relies on Artificial Intelligence & ML and text mining to help commercial insurers extract value from internal unstructured datasets such as application submissions, written policies, exposure schedules, and loss runs. This data has the potential to help insurers improve loss ratios, customer retention, and underwriting capabilities.
Insurtechs are the driving force of this evolution, and investors are taking note. Venture capital (VC) investment has grown faster than the more mature private-equity or public-markets funding. In 2023 total amount of VC invested in insurtechs surpassed $16 billion, $14 billion in 2022.
This has created significant pressure on insurtechs to scale—and to do so quickly. While some insurtechs may choose to merge with incumbents, others will focus on scaling independently. The path to accelerating growth differs depending on the type of insurtech player. In this post, we focus on two common types: emerging carriers and distributors, and ecosystem players.