U.S. property and casualty (P/C) insurers reported a sharp decline in results as catastrophe losses for the group nearly tripled from 2016, according to Fitch Ratings in a new report.
Fitch believes that 2017 may see a record for insured catastrophe losses for the U.S. P/C market after Hurricanes Harvey, Irma and Maria drove massive catastrophe losses which soared to $27.9 billion from $9.7 billion the year prior.
This caused 52 P/C insurers studied in the Fitch report to see an operating return on equity (ROAE) drop to 4.3% in the first nine months of the year (9M17) compared to 7.1% for the same period last year.
Director Chris Grimes, said; “only seven out of the 52 P/C insurers reported an operating ROAE above 10% through the first three quarters of this year.
“The reinsurance and Florida specialist segments were especially hit hard by catastrophe losses, which represented nearly 25% and over 16% of earned premium through the first nine months of this year, respectively.”
The group’s combined ratio slipped into an unprofitable 103.7% in 9M17, up from 95.4% in the prior year, the personal lines group was the only exception, with the sub-segment reporting an underwriting gain through 9M17.
P&C re/insurers, however, made a gain through driving expense ratio improvement; the aggregate group expense ratio improved by 1.8%, down to 27.3%.
Prior-period loss reserve releases declined in 9M17 to $2.3 billion, down from $5.1 billion in 9M16; as a result favorable reserve development represented just 0.8% of earned premium versus 2.1%.
Fitch said group common shareholders’ equity grew by 5.3% in 9M17 to $674 billion as weaker earnings were offset by strong investment results and $19.3 billion unrealized investment gains across the group.
However, “growth in shareholders’ equity was tempered by companies actively managing their capital in 9M17 as $19 billion was returned to shareholders.
“Returned capital includes $12 billion of share repurchases, despite elevated price/book valuations, and $7 billion returned to shareholders in the form of dividends,” Fitch explained.
Despite the deterioration in 9M17 profitability, Fitch maintains a stable rating outlook for U.S. commercial, U.S. personal and global reinsurance; “while the reinsurance sector’s outlook is negative as intense market competition and sluggish cedent demand resulted in a soft reinsurance market,” said Fitch.
Broad-based rating changes are unlikely in the next 1-2 years.
