Insurance rating agency AM Best said it expects the U.S. property/casualty insurance industry to record an increase in surplus in 2021 thanks to investment income and capital gains improvements despite booking an underwriting loss of $15.7 billion.

Best’s Market Segment Report, “P/C Industry Maintains Solid Capital Despite Increased Challenges in 2021,” said factors such as catastrophe activity, secondary perils, increased loss costs and more normalized losses in auto insurance will likely result in an industry combined ratio of 101.8 in 2021 compared to 98.8 in 2020.

AM Best expects industry surplus to increase 7.1 percent, or $66.9 billion, in 2021 to a little more than $1 trillion.

“Frequency and severity trends for most lines of P/C business will remain elevated in 2022 and likely will counterbalance the benefit of favorable pricing and modestly lower catastrophe losses,” said Michelle Baurkot, director at AM Best, in a statement. “If economic pressures dampen pricing, or if catastrophes result in escalating losses owing to inflation, or if more dangerous strains of COVID-19 emerge, the combined ratio may trend higher.”

Looking at 2022, AM Best said U.S. homeowners, personal auto, commercial property, E&S and workers compensation segments each have “stable” outlooks. However, commercial auto, general liability, medical professional liability and professional liability outlooks are “negative.”

Elevated frequency and severity of claims in commercial auto, as well as social inflation and adverse reserve development, led AM Best to predict another year of unprofitable underwriting even though pricing increases and underwriting actions will continue in 2022.

Some of the same factors, namely social inflation and third-party litigation financing, are factors in the negative outlooks for the other lines of business.

In professional liability, “Directors & officers liability risks have expanded over the past few years, as the business environment has become increasingly complex and interconnected, and insurers of cyber and employment practices liability insurance face the daunting challenges of expanding and emerging exposures to loss.”