Peak Hard Market Conditions Drive a 108.9 Combined Ratio in 2023
Midwest Family Insurance Group’s financial results were adversely impacted by a number of headwinds in 2023. Reserve strengthening to combat deficiencies that peaked in 2020 coupled with a bout of inflation that peaked in 2022 drove company loss costs to a level that proved too high relative to incoming premiums. Also, reinsurance costs were higher following by increased severity trends. As a result, the company reported a combined ratio of 108.9, it’s worst operating result in over 20 years.
These results were in line with financial results reported by competing Midwest domiciled property casualty carriers driving harder market conditions. Consequently, MFM was forced to accelerate its efforts to rectify underinsured property values, tighten underwriting standards, and increase rates while strengthening reserves to drive better results in 2024. The macro-trends that drove this poor performance are not isolated to MFM. The industry as a whole experienced a combined ratio well above 100 as a result of inflation, aggressive plaintiff bars, higher reinsurance costs, more severe convective storms, and adverse reserve development. While these results are far from satisfactory, we are encouraged by underlying trends that suggest 2024 will be better. Our underwriting pivot, rate increases, insurance to value initiatives, and more prevalent use of higher deductibles should help mitigate operating loss ratios starting in 2024. While most businesses can immediately react to inflation, our industry is different. Policy contracts are generally one year in length, rate increases require regulatory approval, and revenue is only booked as it is earned throughout the policy term. As such, there is a long lag between the execution of any de-risking initiatives and the resulting financial impact. Calmer weather patterns coming into 2024 have aided the financial healing, and we’ll be reporting a 95-96 combined in the 1st quarter of 2024… a solid improvement from the prior year. We’re encouraged by the trends.
While some carriers have exited states or lines of business, Midwest Family remains a reliable source of insurance capital for our Independent Agents and Policyholders. We continue to seek new business opportunities and have filed our First Class Portfolio (affluent personal lines product) in two new states as we entered the New Year… those states are Idaho and Montana. While our competitors exit the personal lines space, we’re pursuing responsible growth in that line. And while industry results were undesirable in 2023, we continue to invest in the digital customer experience with an online first notice of loss, and an upcoming overhaul of our online insured portal. Though our diversification of portfolio risk has positioned us better than most, it’s impossible to eliminate all systematic exposures. After all, we’re still in the risk business. That said, Midwest Family is well positioned with strong balance sheet strength, responsible investment strategies, and a commitment to our Policyholders and Agents. In fact, it’s our Agency partners who have sustained us through the peak of this hard market, and we’ll be counting on them to aggressively grow their books in the coming years so that we might further expand their business. The future is bright…
Thanks so much for your business!
Aaron W. Boyd, MBA, CPCU, CIC
President & CEO