Overall profitability declined for U.S. property/casualty insurers in the first half of 2017, with net income after taxes dropping 29% from 2016’s first half levels to just $15.5 billion, according to a joint report by ISO and the Property Casualty Insurers Association of America (PCI).
The report highlights the headwinds facing the industry in what’s been a year of above-average losses coupled with abundance of capital as policyholder surplus reaches record-levels.
Insurers’ overall profitability as measured by their annualized rate of return on average policyholders’ surplus declined to 4.4 % from 6.4 % a year earlier; “Insurers’ combined ratio deteriorated to 100.7% for first-half 2017 from 99.7% for first-half 2016, and their $4.5 billion in net underwriting losses in first-half 2017 compares with $1.5 billion in net underwriting losses a year earlier,” the report said.
Meanwhile policyholder surplus reached a new record level this year, mirroring the excess capital within re/insurance in the broader global industry: continuing its steady growth trajectory since the beginning of 2016 to reach $717 billion – up from $709 billion last quarter and $700.8 billion in 2016 Q4.
In this highly pressurised market, the U.S. P&C industry saw a minimal premium growth of just 4.1%, up from 3.1% in the 2016 first-half and $4 billion above the ten-year average.
2017 first half earned premiums grew “3.4 % to $265.8 billion, while LLAE rose 5.7 % to $194.3 billion, other underwriting expenses grew 1.6% to $75 billion, and policyholders’ dividends remained essentially unchanged at $1 billion.
As a result, the industry reported a significant $4.5 billion net underwriting loss; three times the net underwriting loss of $1.5 billion for first-half 2016.
However, insurers writing personal lines provided an exception to the sluggish premium growth trend, reporting above average premium growth rates with net written premium increasing 6% in the first half of 2017 – a continued high-growth rate similar to 2016 levels.
These challenges of deteriorating profitability underscored by the ISO and PCI report are likely to have increased materially by the end of the year when the full impact of the heavy losses from the series of severe hurricanes that struck the U.S. in Q3 is tallied.
Industry experts agree, however, that these losses won’t be on a scale large enough to significantly impact market conditions despite most major global players having consequently issued profit warnings.
Re/insurers remain well-capitalised, benefiting from the below average losses of previous years; thus the abundance of capital in the global industry means players will have to continue to rely on prudent underwriting, innovation, and the benefits of diversification to navigate the saturated market.
