The U.S property and casualty (P&C) insurance sector experienced a generally favourable 2018, according to A.M. Best, which largely attributed the positive results to a turnaround in underwriting performance.
The sector was also boosted by lower losses from catastrophic events and favourable development of prior year loss reverses, the rating agency said, as well as higher net investment income, which contributed to a 69% increase in net income.
Additionally, net premiums written in U.S statutory companies rose due to the 2017 Tax Cut and Jobs Act (TCJA), as changes in accounting rules for internal transactions with foreign affiliates led to revisions and terminations of reinsurance agreements with off-shore affiliates.
The improved performance was partially offset by unrealized investment losses, driven primarily by equity market declines during the fourth quarter, which resulted in a slight decline in policyholders’ surplus for the year.
A.M. Best reported that pricing remained positive across most major lines in 2018, with the notable exception of workers’ compensation.
“In general, rate increases have kept pace with loss trend, resulting in improved core loss and combined ratios,” the firm stated.
Underwriting expenses increased by 10.7% in 2018, outweighing a 9.8% increase in premiums earned and resulting in an overall underwriting loss of $2.9 million.
However, analysts noted that this relatively modest loss marked a significant improvement from the $25.3 billion underwriting loss in 2017, which was greatly impacted by natural disaster costs.
A.M. Best observed that the U.S P&C industry has had to increasingly focus on bottom-line underwriting results over the past decade to generate positive results, due to the persistence of challenging investment markets.
“While insurers were able to accept underwriting losses in the past, changing market dynamics make that strategy increasingly problematic,” A.M. Best said, adding that it continues to see underwriting performance as a “crucial metric” in gauging insurers’ future claims-paying ability.
