Net investment income for the U.S. property/casualty insurance sector is expected to hit a record high of $73.9 billion in 2023, supported by a rising interest rate environment, according to a new report from AM Best.
The Best’s special report, “U.S. Property/Casualty Insurers Achieve Record Investment Returns in 2023,” reports that net investment income increased 1.4% year over year.
AM Best said its 2022 net investment income was skewed by $10.8 billion of consolidated intercompany dividends from large reinsurers that flowed in through net investment income.
Taking into account this one-time transaction, the industry’s net investment income would have increased by about 20% in 2023, the ratings firm added.
Higher investment income was an important component of the company’s underwriting performance, driven by increased weather and casualty events, and helped partially offset weakness in business lines such as automotive.
“Over the past decade, total net underwriting income has been volatile and often negative across the industry, so investment income remains important to the bottom line,” said Helen Andersen, industry analyst at AM Best. “Property insurers have had to balance their risk tolerance with the need for higher income when determining their investment strategies in a rapidly changing economic climate.”
AM Best said that while the P/C industry has been shifting portfolios to riskier assets (also known as alternative investments such as real estate, hedge funds and private equity investments) in search of higher yields, the percentage of Schedule BA assets in total portfolios has fallen to 6.6% in 2023 from 8.1% a year ago.
At the same time, their share of total shares increased dramatically from approximately $600 billion to $667 billion in 2023.
The increase in stockholdings outpaced the increase in retained earnings, so the proportion of stocks in retained earnings increased by about 10 percentage points to 70%.
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