For the first time in four years the U.S. property and casualty (P/C) industry saw net premiums written (NPW) increase in 2017, although this was offset by greater losses and loss adjustment expenses (LAE) as a result of 2017 catastrophe events, ultimately driving profit deterioration, reports A.M. Best.
The ratings agency reports that 2017 pre-tax operating and net income both declined but remained positive in the U.S. P/C sector, as increased investment income of almost $50 billion offset the sector’s $25.3 billion underwriting loss.
Despite the underwriting loss, investment income of $49.4 billion resulted in a pre-tax operating income of $18 billion for 2017, which is almost 56% lower than 2016’s $40.8 billion.
Year-on-year, losses and LAE increased by almost 9% from $380 billion to $413.2 billion for the sector. Overall, the industry ended 2017 with net income of $37.8 billion, which is more than 9% lower than the $41.7 billion reported at year-end 2016.
Based on data received by A.M. Best as of April 30th, 2018, catastrophe losses in 2017 added 9.8 points to the U.S. P/C industry’s loss ratio, which the ratings agency says is more than double the 4.8 points assumed in its projections, which is based on historical averages.
“Globally, once the final tally is in, 2017 may top the current 2011 record for insured catastrophe losses,” warned A.M. Best.
Uncertainty remains surrounding both the total economic and insured loss from 2017 catastrophe events, and A.M. Best notes that while the industry’s losses from hurricane Harvey and Irma could prove to be lower than initial estimates, the cost of hurricane Maria continues to grow.
“The increased cost of adjusting claims associated with these events also negatively impacted the industry’s LAE, which rose to $64.4 billion in 2017, up 5.6%,” explained A.M. Best.
Looking forward, A.M. Best said: “With the industry remaining robustly capitalized internally despite disappointing 2017 results, and with new capital still willing to meet needs the industry cannot meet itself, there does not appear to be significant potential for a material change in the overall dynamic of the market in the near term.
“A return to a more historically normal level of catastrophes could generate more favorable results, which might stifle efforts to achieve rate levels that support an improved level of underwriting profitability.”
