Amid pressures from inflation, a hardened reinsurance market, and severe weather events, mutual insurers are grappling with many of the same challenges as the broader property & casualty insurance industry, according to AM Best financial analyst Lauren Magro (pictured). But how are they coping? Magro delved into the matter in a recent interview.
“The main one that they’re really facing pressure from is rising inflation,” Magro told AM Best TV. “That has driven loss costs upward since about 2022.”
Another key pressure comes from the hardened reinsurance market, where increased retentions are forcing many mutual insurers to absorb more losses. “A lot of mutual insurers are now taking these losses to their bottom lines,” Magro noted, adding that severe weather activity across various US regions has not spared mutual insurers.
Meanwhile, although many mutual insurers began raising rates in 2022 and continued throughout 2023, the delayed impact of the changes has made it hard to realize immediate benefits. “Given the nature of a 12-month homeowner’s insurance policy, it takes time for rate to earn through,” Magro explained.
There are signs of improvement, however. “In 2024, we are seeing some of that rate earn in – net earned premiums up substantially,” Magro said in the interview, pointing out that the mutual segment posted net income in the first half of 2024, indicating that rate increases are beginning to cover the elevated loss levels.
Investment income also played an important role in supporting mutual insurers’ financial performance in 2023, particularly in light of previous losses. According to Magro, the rebound in the equity market last year helped boost policyholder surplus growth while many mutual insurers were able to offset underwriting losses with investment gains.
Notably, in addition to adjusting rates and increasing inflation guard protections, mutual insurers are taking a range of actions to mitigate their exposure to rising losses, including tightening underwriting guidelines, increasing minimum deductible levels, and focusing on more profitable sectors.
What do you think about this story? Share your thoughts in the comments below.
