The U.S. property/casualty insurance industry saw its net income after taxes drop 30% in 2017 after the industry was hit with record-setting catastrophe losses, according to ISO and the Property Casualty Insurers Association of America (PCI).
The net underwriting losses reached $20.9 billion, far exceeding the $1.7 billion underwriting loss for nine-months 2016 and causing net income after taxes to drop to $22.4 billion in 2017 down from $32.1 billion in 2016.
Beth Fitzgerald, Senior Vice President, Industry Engagement, ISO said the insurance industry experienced significant underwriting losses in the first nine months of 2017, “as Hurricanes Harvey, Irma, and Maria caused widespread damage to homes and businesses in the United States.
“But the costs could have been much higher if Irma, for example, had taken its predicted track through Miami. In the years to come, many experts believe that catastrophic events will become more frequent and severe because of climate change.”
A 11.3% increase in loss and loss adjustment expenses (LLAE) for the same nine month period driven by 2017’s record-setting catastrophe losses and exceeding the 7.6% increase from a year earlier compounded the industry’s declining net income loss.
Robert Gordon, PCI’s Senior Vice President for Policy, Research and International, said; “third-quarter 2017 broke 166 years of weather records with three Category 4 hurricanes making U.S. landfall-causing one of the most expensive insured loss years in U.S. history.
“Incurred losses and loss adjustment expenses increased $21.1 billion from third-quarter 2016 to third-quarter 2017, resulting in a $16.4 billion statutory underwriting loss for the quarter and a combined ratio of 110.7.
“Fortunately, despite the historic, devastating catastrophes, home, auto, and business insurers were well positioned to handle these events, as policyholder surplus remains at an all-time high. Net written premiums grew over 4 percent in the third quarter and 6.6 percent year-to-date for insurers writing predominantly personal lines. Underwriting losses were ameliorated by $6.7 billion in favourable reserve development.
However, the industry’s heavy loss year was helped by rebounding net written premium growth at 4.1% and net investment income increasing to $35.4 billion in nine-months 2017 from $33.2 billion 2016.
Despite the underwriting losses, the investment gains pushed industry’s surplus to value of $719.4 billion as of September 30, 2017, an $18.6 billion increase from $700.8 billion as of December 31, 2016.
Robert Gordon, PCI’s Senior Vice President for Policy, Research and International,commented; “fortunately, despite the historic, devastating catastrophes, home, auto, and business insurers were well positioned to handle these events, as policyholder surplus remains at an all-time high.
“Net written premiums grew over 4 percent in the third quarter and 6.6 percent year-to-date for insurers writing predominantly personal lines. Underwriting losses were ameliorated by $6.7 billion in favorable reserve development.”
Overall profitability, as measured by its annualized rate of return on average policyholders’ surplus, fell to 4.2% from 6.3%, according to IS, and the Property Casualty Insurers Association of America (PCI).
Gordon said that although financial results have been improved by significant realized and unrealized capital gains, looking ahead, fourth-quarter net income will likely be impacted by further catastrophe loss development and write-downs of deferred tax assets resulting from federal tax reform.
Fitzgerald added that; “while the industry remains well capitalized and prepared to meet claims, the events have highlighted the need for better analytics to help insurers manage and price catastrophic risk. It’s also illustrated the need for broader coverages, such as flood, to meet the changing needs of communities.”
