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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 62 August 2024 J O U R N A L A Ripple Effect The reverberation of commercial foreclosures can do great damage to a financial ecosystem, and as a recent Marketplace article notes, small banks are bearing the brunt of the rise in com- mercial foreclosures. The article noted that KeyCorp, Comerica, and Ally all reported that their net income fell in Q1, as did larger banks like U.S. Bancorp and Citizens Financial, with the one thing weighing on the sector being commercial real estate. These banks have a great deal of CRE (Commercial Real Estate) loans on their books, loans that may continue to mount should the rate of commercial real estate foreclosure turn upward. 2023 UNDERWRITING LOSSES MIRROR 2022 TRENDS T he main national trade organi- zation for commercial, home, and auto insurers, The American Property Casualty Insurance Association (APCIA) and Verisk have released a state- ment regarding the insurance industry's projected $21.1 billion in full-year 2023 losses. Important financial metrics for private U.S. property/casualty insurers show that underwriting losses in 2023 resembled those in a challenging 2022. Net income is at its lowest point in over a decade, despite the industry's expected net underwriting loss of $21.1 billion being less than the $24.8 billion recorded the year before. It dropped to $35.7 billion in 2023 from $44 billion the year before, a 19% reduction. Earned premiums grew by 9.9% in 2023, but incurred losses and loss adjustment costs increased by 10.1%. A key indicator of insurer profitability, the combined ratio scarcely moved from 102.4% in 2022 to 101.6 % in 2023. Based on about 96.9% of all business underwritten by private property/casu- alty insurers in the United States, these results have been calculated. "Insurers experienced a second straight year of net underwriting losses with over $21 billion in red ink in 2023 following nearly $25 billion in 2022," said Robert Gordon, SVP of Policy, Research, and International at APCIA. "While overall industry surplus—representing the supply capacity for insurance cover- age—modestly increased in 2023 thanks to investment gains, it has still not recov- ered from the $72 billion contraction in 2022 and fell to a five-year low relative to premium revenue. Homeowners and auto insurance performed particularly poorly: in both 2022 and 2023, loss ratios exceeded levels not seen in more than 20 prior years. As insured losses skyrocket, many policyholders in the United States face rising insurance costs and availabili- ty challenges, which is why the insurance industry is analyzing these issues and advocating for solutions. However, the market won't fully stabilize until insurers can close the gap between losses and rates." The policyholders' surplus increased to $1,014.8 billion in 2023 from $950.8 billion in Q3; however, the insurers' rate of return on average policyholders' surplus, which is a critical factor in total profitability, fell to 3.6% in 2023 from 4.4% in 2022. Premiums and combined ratios both saw year-over-year increases in the fourth quarter, which can be attributed to a significant drop in cat occurrences. In Q4 of 2023, the industry's net in- come increased to $18.8 billion, up from $10.6 billion in the same period of 2022. Additional data: » While the first half of the year expe- rienced record-breaking catastrophe activity, activity in the second half was below-average, most notably in Q4. Catastrophe losses for Q4 of 2023 were the lowest quarterly cat losses since 2015 and the fewest quarterly catastro- phe events since 2016. Net written premiums increased by $17.9 billion in Q4 of 2023, representing a growth of 9.7% compared to the previous year. "Insurers experienced a second straight year of net underwriting losses with over $21 billion in red ink in 2023 following nearly $25 billion in 2022." —Robert Gordon, SVP of Policy, Research, and International, APCIA