16th May 2018

US P & C surplus at a new high despite catastrophic 2017

Private US property/casualty insurers saw investment gains push the industry’s surplus to a new all-time-high value of $752.5bn in 2017, a $51.7bn increase from 2016, and catastrophe losses suppressed the industry’s net income after taxes to $36.1bn in 2017, a 15.8% decline from a year earlier, according to ISO, and the Property Casualty Insurers Association of America (PCI).
The industry’s net investment income increased to $49bn in 2017 from $46.6bn a year earlier, and net written premium growth rebounded to 4.6% for 2017 from 2.7% in 2016.
Losses and loss adjustment expenses (LLAE) rose 8.4% in 2017, significantly exceeding the 3.3% earned premium growth. The increase in LLAE was driven by catastrophe losses, as three major hurricanes—Harvey, Irma, and Maria—made landfall in the US in the third quarter, followed by devastating California wildfires in the fourth. The net underwriting loss reached $23.2bn, far exceeding the $4.7bn underwriting loss for 2016.
“Three major hurricanes and devastating wildfires resulted in significant underwriting losses for insurers in 2017, suppressing the industry’s income but failing to erode its capital. Moreover, investment gains, partially driven by changes in the tax law, drove the industry surplus to a record high. Insurers have a sophisticated protection system that includes reinsurance, insurance-linked securities, and their own capital, supporting their ability to pay claims after significantly worse catastrophes. Still, these catastrophes tested the ability of insurers to serve their customers and highlighted significant coverage gaps in flood insurance today. The reality is that millions of Americans are uninsured or underinsured against flooding, and insurers have a great opportunity to meet these changing needs. Weather events, though, aren’t the only perils that concern customers. Cyber risks are threatening businesses of all sizes and are expected to grow rapidly in the coming years. At Verisk, we’re working hard to help insurers address risks like flood and cyber and meet the rapidly changing expectations of their customers, both now and in the future,” comments Neil Spector, president, ISO.
“During the second half of 2017, insurers weathered one of the most challenging series of catastrophic loss events in US history. Yet, despite Hurricanes Harvey, Irma, and Maria, along with devastating wildfires in California, industry surplus grew to record levels. The catastrophe losses were largely offset by nearly $74bn in realized and unrealized capital gains as a result of favourable market returns, which benefited in part from the anticipated positive impact of US tax reform. US insurers are hanging onto profitability through unusually favourable financial market developments. However, the increasing underwriting losses call into question catastrophic rate adequacy, particularly based on long-term global trends toward increasing catastrophic loss frequency and severity and predictions for another active catastrophe season in the US this year. Fortunately, as the US prepares for potentially active 2018 hurricane and wildfire seasons, insurers continue to be strong, well capitalized, and well prepared to meet the needs of customers,” added Robert Gordon, PCI’s svp for Policy, Research and International.

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