Industry surplus grew $51.7 billion to an all-time high of $752.5 billion for U.S Property and Casualty (P&C) re/insurers in 2017 despite a 15.8% drop in net income, according to ISO, a Verisk business, and the Property Casualty Insurers Association of America (PCI).
Net investment income, which increased from $46.6 billion in 2016 to $49.0 billion in 2017, helped to push up industry surplus and overcome the year’s heavy catastrophe losses, which left net income after tax at just $36.1 billion.
Additionally, capacity was supported by net written premium growth, which rebounded to 4.6% for 2017 from 2.7% in 2016.
However, net underwriting loss reached $23.2 billion, far exceeding the $4.7 billion figure for 2016, and losses and loss adjustment expenses (LLAE) were also found to have risen 8.4% in 2017, overshadowing the 3.3% earned premium growth.
Neil Spector, President of ISO, commented: “Three major hurricanes and devastating wildfires resulted in significant underwriting losses for insurers in 2017, suppressing the industry’s income but failing to erode its capital. Moreover, investment gains, partially driven by changes in the tax law, drove the industry surplus to a record high.
“Insurers have a sophisticated protection system that includes reinsurance, insurance-linked securities, and their own capital, supporting their ability to pay claims after significantly worse catastrophes. Still, these catastrophes tested the ability of insurers to serve their customers and highlighted significant coverage gaps in flood insurance today.”
Robert Gordon, Senior Vice President for Policy, Research and International at PCI, added: “Catastrophe losses were largely offset by nearly $74 billion in realized and unrealized capital gains as a result of favorable market returns, which benefited in part from the anticipated positive impact of U.S. tax reform. U.S. insurers are hanging onto profitability through unusually favorable financial market developments.
“However, the increasing underwriting losses call into question catastrophic rate adequacy, particularly based on long-term global trends toward increasing catastrophic loss frequency and severity and predictions for another active catastrophe season in the U.S. this year. Fortunately, as the U.S. prepares for potentially active 2018 hurricane and wildfire seasons, insurers continue to be strong, well capitalized, and well prepared to meet the needs of customers.”
For fourth quarter 2017, ISO and PCI found that re/insurers’ net income after tax rose 26.6% to $13.8 billion when compared with Q4 2016, while annualized rate of return on average surplus increased to 7.5%, net written premiums rose 6.1%, and combined ratios improved to 102.5% from 104.1%.
