AM Best expects the financial performance of the US property and casualty (P&C) industry to show improvement for 2019, with results benefiting from a lower level of catastrophe losses and an improving rate environment in key lines, particularly short-tail property lines.
The rating agency expects the 2019 combined ratio to improve by 1.4 points to 98.2%. reflecting these lower catastrophe losses and a lower expense ratio.
However, a return to a more normal level of catastrophe losses may produce a higher combined ratio in 2020, even though AM Best expects the industry to maintain underwriting profitability.
Property lines of business played a key role in the improved underwriting results, with catastrophe losses incurred by US statutory insurers down $6.8 billion, to $27.6 billion for the year.
In addition, some of the largest price increases in 2019 were concentrated in these lines, reflecting higher losses in recent years and upward momentum in the cost of reinsurance.
AM Best estimates that pre-tax operating income will increase in 2019 to $65.1 billion for the year, a 17.5% increase from the $55.4 billion achieved in 2018.
Net income is also projected to increase in 2019, but with a lower level of realized gains expected, the increase will be more modest.
In the commercial segment, analysts noted that loss reserve development trends in 2019 and 2020 could adversely impact results, although casualty lines are expected to show the most deterioration in prior year reserves due to social inflation factors.
Overall, AM Best expects the P&C industry to continue to post modestly favourable underwriting results, with investment income generating the bulk of its profits in 2020.
Capitalisation will similarly remain very solid, it said, although individual companies may face challenges based on the lines of business and jurisdictions in which they write.
