P/C Mutual Insurers Improved Underwriting in 2019; Top 10 Hold 72% of Market: AM Best

September 22, 2020

Despite a highly competitive property/casualty insurance industry and pressures on operating performance, U.S. mutual insurance companies reported continued improvement in underwriting performance in 2019 and managed to grow surplus.

According to the AM Best Market Segment Report, “U.S. Mutuals’ Strong Balance Sheets at the Fore Amid Pandemic,” net premiums written (NPW) for AM Best-rated mutuals grew by a modest 2.6% in 2019. Although the pace has slowed in recent years, AM Best noted that its rated mutuals have seen NPW growth every year since 2010.

Net income for these carriers decreased more than 16% in 2019 to $16.8 billion, following a strong 2018, when net income tripled due to lower losses from catastrophic events. AM Best said the lower net income for 2019 was largely attributable to a 7.2% reduction in net investment income and a 32.9% reduction in realized capital gains.

According to AM Best, the 10 largest rated mutuals account for approximately 72% of NPW in 2019, and the top 25, for nearly 83%.

Top 10 Mutual P/C Insurance Carriers (2019 NPW, $ millions)

  1. State Farm 65,100
  2. Liberty Mutual 32,268
  3. USAA Group 22,981
  4. Nationwide Group 17,993
  5. Farmers Insurance 14,494
  6. American Family 11,842
  7. Auto-Owners Group 8,586
  8. Erie Group 7,478
  9. Auto Club Group 4,547
  10. CSAA Group 4,031

Source: AM Best Market Segment Report, U.S. Mutuals’ Strong Balance Sheets at the Fore Amid Pandemic

The mutual segment’s policyholders’ surplus increased by 9.6% in 2019 to $349.3 billion, driven by nearly $21 billion in unrealized capital gains, as compared with $14 billion in unrealized capital losses in 2018.

In contrast 2016 and 2017, relatively fewer severe weather-related events occurred in 2018 and 2019, which helped lead to an improvement in the mutual segment’s incurred loss ratio. However, despite an improvement in rate adequacy and underwriting results, the segment incurred modest underwriting losses in 2018 and 2019. The segment recorded a combined ratio of 101.0 in 2019, unchanged from 2018.

The median policyholders’ surplus size of these fated companies is $169 million, and the median five-year average combined ratio is 97.5%, indicators of the overall health and stability of the organizations’ balance sheets.

Approximately 65% wrote more than half of their business in one state in 2019, while one line of business accounted for more than half of NPW for 42% of them.

The P/C insurance companies in this AM Best report are mutuals, insurance cooperatives, and reciprocal exchanges, which include risk retention groups and state funds, and comprised 276 US-domiciled rating units as of Dec. 31, 2019.

Over the past 10 years, AM Best-rated mutuals have held approximately 40% of the P/C industry’s market share.

The ratings outlook for 80% of these firms in the mutual segment is Stable. Of this cohort, the median policyholders’ surplus size is $169 million, and the median five-year average combined ratio is 97.5%, indicators of the overall health and stability of the organizations’ balance sheets.

AM Best found that, as is the case for the rest of the industry, COVID-19 is having an impact on the mutual insurance segment—from commercial multi-peril exposure to business interruption claims, to extensive reorganization of employee office arrangements, to substantial premium refunds—as the fundamentals of insured exposure have been radically altered. A considerable increase in policyholder dividends in first-half 2020 over the same period in 2019 partially reflects these premium refunds, although some may be reported as other underwriting expense, or even as reduced premiums.

AM Best said the impact of COVID-19 is likely to extend beyond third-quarter 2020 results.

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