U.S. property/casualty (P/C) insurers recorded a $4.7 billion net underwriting loss in 2016 with a combined ratio of 100.7%, compared with an underwriting gain of $8.9 billion and a combined ratio of 97.8% a year earlier, as higher catastrophe losses and less favourable reserve development impacted profitability, according to ISO, a Verisk Analytics business, and the Property Casualty Insurers Association of America (PCI).
“Catastrophe losses continued to hurt insurer performance in 2016. There were 43 catastrophe events in 2016, the highest number of such events since 1980. There’s no way around it-to underwrite catastrophic risk better, insurers need detailed and accurate analytics of weather and environmental perils. But last year’s catastrophe losses weren’t the only ones that affected insurers,” said Beth Fitzgerald, President of ISO Solutions.
Direct insured property losses as a result of catastrophe events in the U.S. reached $21.6 billion in 2016, up 42% on the $15.2 billion recorded in 2015, and roughly 12.5% above the ten-year average of $19.2 billion, according to ISO.
Net income declined across the group of private U.S. P/C insurers by 25% after tax, to $42.6 billion, compared with $56.8 billion a year earlier. Net premiums written increased to $528.2 billion in 2016, however, at the same time, net written premium growth slowed when compared with 2015, to 2.7% from the previous 3.5%.
Insurers and reinsurers in the P/C industry have found underwriting profits increasingly difficult to come by in a challenging and softening landscape, and the group of U.S. P/C insurers, in line with the broader marketplace, saw investment gains increasingly challenging in 2016, with low interest rates persisting.
Net investment income fell by $900 million in 2016 to $46.3 billion, and realized capital gains also fell from $9.4 billion in 2015, to $7.3 billion in 2016. This led to $53.7 billion in net investment gains in 2016, a decline of $3 billion on the previous year.
“Legacy losses also continued to hurt performance and were evidenced by reserve charges and several special reinsurance transactions designed to limit the development of carried reserves. Those legacy issues should serve as a strong reminder that insurers need to engage in disciplined underwriting now or pay the price for it later. Those insurers that use robust data and up-to-date policy language will be the best poised for success,” continued Fitzgerald.
Robert Gordon, PCI’s Senior Vice President for Policy Development and Research, also commented; “Industry operating results during 2016 continued to hover near long-term trend lines-although with deterioration since 2013 in almost all categories, including premium growth, incurred loss and loss adjustment expenses, underwriting gains, and pretax income. Results were dragged down in part by soaring losses in personal and commercial auto, where accident frequency and severity continue to outpace premium increases and evidence suggests adverse development in reserves.
“Net investment income also worsened to the lowest level in decades, reflecting a long-term decline in net yield on invested assets. Despite the recent headwinds, policyholder surplus continued its steady growth to record levels, boosted by an increase in unrealized capital gains. But direct and net written premium increases since the last recession have still significantly lagged behind policyholder surplus and GDP growth.”
