Despite a well capitalised industry, U.S. property & casualty (P&C) insurers continue to face a series of headwinds that will persistently challenge the profitability of the sector, but opportunities do exist, according to reinsurance broker, Guy Carpenter.
A report from broker Guy Carpenter, Plotting a Path in a Challenging Market, looks at the performance of the U.S. P&C insurance industry, underlining that profitability will continue to be challenged by a series of industry headwinds.
According to Guy Carpenter, in 2016, the average large P&C insurer saw its accident year loss ratio rise by 2% from the previous year, and despite the sector’s strong capitalisation levels, both economic and market-driven headwinds suggest challenging times ahead.
Tim Gardner, President of North America for Guy Carpenter, commented; “On the surface, 2016 represented a record-setting year for the P&C insurance industry, with surplus reaching its highest level in history. Rate reductions continued to moderate, and there was optimism following the 2016 election given the potential for tax cuts and deregulation.
“Yet red flags remained, and a closer look at the individual metrics contributing to the growth in surplus revealed interesting trends.”
In 2016, the combination of emerging risks, increased catastrophe frequency and severity, and changing capital requirements, resulted in a 0.4% underwriting loss for the sector, the first time this has happened since 2012, according to Guy Carpenter.
Mounting pressures that include adverse development and reduced margins, supported by excess levels of capacity, slower premium growth, and intense competition, persisted in 2016, and have continued in 2017 alongside the addition of high catastrophe losses in the second-half of this year.
But despite the array of challenges, Guy Carpenter explains that opportunities do exist for companies with management skill and understanding of risks.
So, while headwinds clearly impacted the U.S. P&C sector in 2016, high levels of catastrophe losses as a result of recent hurricanes and other global disasters, suggests the U.S. P&C industry is to face a challenging market environment for the remainder of the year, with profitability likely pressured.