The U.S. property/casualty insurance segment’s net investment income hit a record $73.9 billion in 2023, bolstered by the higher interest rate environment, according to a new AM Best report.

The Best’s Special Report, “U.S. P/C Insurers Achieve Record Investment Income in 2023,” reported a 1.4 percent increase in net investment income improvement over the previous year.

Net investment income in 2022 was skewed by a $10.8 billion intercompany distribution at a very large reinsurer, which flowed through net investment income, the report noted.

Adjusted for this one-time transaction, the growth in the industry’s net investment income would have been nearly 20 percent in 2023.

The growth in investment income helped to partially offset unfavorable performance in lines of business such as auto, the report added.

Investment income is an important factor in making up for for poor underwriting results as a result of increased weather and catastrophe events.

“Aggregate net underwriting income has been volatile in the last 10 years—and often negative across the industry—and so investment income remains vital to earnings,” said Helen Andersen, industry analyst, AM Best. “Property/casualty carriers have had to balance their risk appetites with the need for higher returns when deciding on investment strategies in a rapidly changing economic landscape.”

The report found that the property/casualty industry has shifted to riskier assets (also known as alternative investments like real estate, hedge funds and/or private equity interests) in its portfolio in the search of higher yields, but the percentage of Schedule BA assets within the total portfolio dropped to 6.6 percent in 2023 from 8.1 percent in the previous year.

At the same time, the share of total stocks increased dramatically in 2023, to $667 billion from approximately $600 billion.

Stocks as a percentage of surplus increased by about 10 percentage points, to 70 percent, as growth in stock holdings outpaced growth in surplus.