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OLDWICK, N.J.–(BUSINESS WIRE)–AM Best-rated property/casualty (P/C) mutual insurers more than tripled net income in 2018, owing to lower losses from catastrophic event and increased investment income.

A new Best’s Market Segment Report, titled, “U.S. Property/Casualty Mutual Insurers: Underwriting Results Improve; Challenges Remain,” states that rated mutuals’ net premiums written (NPW), which have grown every year since 2010, continued to grow in 2018, albeit at a moderate pace of 4.2%. The NPW growth over the last five years can be attributed to the consistent pace of rate actions on the property side and more recent aggressive pricing for the automobile lines. Overall, the rated property/casualty mutuals recorded a combined ratio of 101.1% in 2018, a 5.3-point improvement from 2017, as every line of business except for accident and health insurance showed improvement in the segment’s incurred loss ratio, mainly due to better rate adequacy and fewer severe weather-related events.

Net investment income rose over 26% for the rated population, driven mainly by increased dividends in equities (higher common stock affiliates collected) and other invested assets at Liberty Mutual Insurance Companies and American Family Insurance Company, which benefited from the 2017 Tax Cuts and Jobs Act. Policyholders’ surplus, an important performance metric for mutual companies, rose by nearly 2% in 2018, compared with 6% in 2017. The surplus growth was driven mostly by $20.2 billion in net income, which is more than three times the $6.2 billion recorded in the previous year. The 2018 net income was partially offset with a significant change in unrealized capital losses in fourth quarter 2018.

Over the past 10 years, the AM Best-rated mutuals have held 40.5% of the P/C industry’s market share, virtually unchanged, demonstrating their strong market presence and an ability to effectively react to changing market dynamics. Analysis of these mutuals under Best’s Credit Rating Methodology indicates that the companies have robust balance sheets, adequate operating performance, limited business profiles and appropriate enterprise risk management structures.

Competition remains heightened in this sector amid an insurance industry transformation due to technological advances and economic and demographic changes. Many larger carriers have addressed these market shifts by embracing innovation, but AM Best believes some smaller mutuals lag in this area, as they may be tasked with the challenges of high expense ratios due to the small scale of operations. Additionally, some mutuals are subject to regulatory caps on certain expense ratios and are unable to invest further in a chief innovation officer or hire a third-party consultant. In these instances, many mutuals have employed cross-functional teams to focus on innovation.

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Kimberly Muccia
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Jim Peavy
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