Kroll Bond Rating Agency (KBRA) has reported that it considers the outlook for the U.S property and casualty (P&C) industry to be stable, and that policyholders’ surplus (PHS or surplus) will likely be the highest ever recorded at year-end 2017.
Despite an incredibly turbulent and destructive 2017 Atlantic hurricane season, KBRA estimates that the year-end industry surplus figure will be somewhere between $755 billion and $770 billion.
KBRA does not anticipate a year-over-year decline in aggregate industry surplus even with its estimates of $115 billion in insured U.S. catastrophe losses and $30-45 billion in P&C underwriting losses for 2017.
In fact, KBRA believes the U.S. P&C sector is financially sound, with end of 2017 capital at a record high thanks to high-quality investment portfolios and strong total returns.
The ratings agency also observed a strong reinsurance capacity through the 1/1/18 renewal cycle, and believes current pricing pressures will continue.
The PHS estimate is 39% higher than the year-end figure 10 years ago, and is anticipated to grow throughout 2018. This growth will largely be driven by factors like net income generated, net unrealized capital gains, and new business formations.
The rating agency identified several favourable operating trends that allowed the U.S P&C industry to remain stable throughout such a challenging season. These trends included capital growth, no major catastrophes before the third quarter, abundant reinsurance capacity, and favourable reserve releases.
The combination of the substantial surplus figure, the favourable trends and the general resilience to a costly hurricane season has led KBRA to deem the industry’s outlook as stable.
However, KBRA notes that the industry’s stability and capital growth have also been supported by several other considerable factors, and that U.S insurers have benefited from an unusually healthy capital position over an extended period.
Contributing factors include the eight years of U.S economic expansion since the financial crisis, low but stable interest rates, a ten-year period of catastrophe losses below $40 billion annually, and ten years of positive reserve development.
