A.M. Best has estimated that in 2017 the U.S. property / casualty (P/C) industry experienced catastrophe losses of $52.9 billion, an increase of more than 26% when compared with the previous high set in 2011, and which resulted in a net underwriting loss of $23.5 billion.
The ratings agency explains that the data for its ‘First Look – 2017 Property/Casualty Financial Results’, includes firms’ which account for roughly 96% of total U.S. P/C industry net premiums written and 94% of policyholder surplus.
Combined, the group of U.S. P/C re/insurers fell to an underwriting loss of $23.5 billion, which is a decline of more than 327% when compared with the $5.5 billion net underwriting loss recorded in 2016.
A.M. Best states that the underwriting loss was primarily driven by higher catastrophe losses, which increased by 109.8% on 2016, “dwarfing our previous record estimated loss of $41.9 billion for 2011.”
Exacerbating higher catastrophe losses and contributing to the net underwriting loss, incurred losses and adjustment expenses for 2017 also increased for the industry, up 8.5% on 2016 and which A.M. Best says “significantly more than offset the 3.5% increase in net premiums earned.”
As a result of the increased underwriting loss the industry’s reported combined ratio weakened to 103.8% in 2017 from 100.8% in 2016, its weakest of the last five years. Moreover, A.M. Best estimates that catastrophe losses account for 10 points on the combined ratio in 2017, compared with just 4.9 points in the previous year.
Net investment income earned did strengthen for the industry in 2017 to $5.6 billion, although this was largely offset by a $5.2 billion loss in other income, which A.M. Best says reflects the “impact of a retroactive reinsurance contract that AIG and National Indemnity entered into in February 2017.”
According to A.M. Best, the industry recorded pre-tax operating income of $21.5 billion in 2017, a decline of 47.4% when compared with 2016, and, combined with an increase in realized capital gains of $11.2 billion and a $7.5 billion reduction in federal taxes incurred, the industry’s net income for 2017 totalled $40.8 billion, relatively unchanged from 2016.
Despite the reduction in net income, the industry’s surplus did increase by 6.8% in 2017 to $733.8 billion, explains A.M. Best.
In light of the record level of catastrophe losses experienced in 2017 by the U.S. P/C industry, the increased underwriting loss and subsequent weaker combined ratio isn’t too surprising.
But with reports that rates in the global re/insurance industry improved at the January renewals, a trend that is expected to persist throughout 2018, it will be interesting to see how the U.S. P/C sector performs in the months ahead, as competition from both traditional and alternative sources persists.
