In light of improved results in 2018 driven by lower catastrophe losses and rising premiums, international financial ratings agency, A.M. Best, is to maintain its stable outlook for the U.S. Property and Casualty (P&C) insurance sector.
The ratings agency anticipates that reduced cat losses and continued increases in premiums will drive an improved combined ratio for the U.S. P&C insurance segment in 2018, when compared with the previous year.
Despite this, A.M. Best does echo the sentiment of other industry observers and participants in recent times, that the rate environment remains challenging in the vast majority of commercial lines. Furthermore, the ratings agency notes that underlying loss experience deteriorated in 2018, reflected in the increase in the normalised accident year combined ratio.
At the same time, A.M. Best does expect loss reserve development to remain favourable, but with an overall decline in the benefit of prior accident year adjustments in 2018.
For 2018, the U.S. P&C insurance sector is expected to produce a pre-tax operating income of almost $43 billion, driven largely by modestly higher investment income and a lower, albeit still negative underwriting result.
Net premiums written (NPW) for the segment are expected to reach their highest growth level in recent years, which A.M. Best attributes to growth in direct written premiums and also the retention of premiums previously ceded to offshore affiliates in light of the Tax Cuts and Jobs Act (TCJA).
Despite lower catastrophe losses in 2018 when compared with 2017, the insurance and reinsurance industry still experienced an above-average level of losses. As a result, A.M. Best still expects the U.S. P&C industry to record an underwriting loss in 2018, for the third consecutive year.
Looking forward, and A.M. Best is anticipating a slight rebound for 2019, with a small decline in the underwriting loss and modestly higher investment income. NPW is expected to dip in 2019, reflecting a normalisation of the relationship between direct and net written premiums, and also as a result of the introduction of the BEAT in 2018.
“For 2019, we are forecasting further improvement in the industry’s combined ratio based on the expectation of a more normalized level of catastrophe losses, in line with long-term averages. Our forecast incorporates approximately 5 points, or $31 billion, in catastrophe losses for 2019,” says A.M. Best.
Adding, “Partially offsetting the decline in catastrophe losses is the projection of lower favorable loss reserve development and higher core losses. Deterioration in the workers’ compensation, commercial auto, and medical professional liability lines of business are expected to be key factors in driving core losses higher.
“The improvements in property-related lines of business are primarily the result of lower anticipated catastrophe losses. Overall, the combined ratio for 2019 is predicted to improve slightly, by 0.3 points, to 101.2.”
