Higher catastrophe losses, lower investment income fuel reduced growth in underwriting gain for U.S. p&c insurance

The highest level of catastrophe losses in five years contributed to the U.S. property and casualty insurance industry witnessing deteriorated underwriting results in the first quarter of 2016 compared to the prior-year quarter, notes a special report issued Friday by A.M. Best.

The industry’s underwriting gain was US$2.1 billion for the first quarter of 2016, down from US$3.9 billion in the same quarter of 2015, notes Resurgent Catastrophe Losses and Declining Investment Income Impact U.S. Property/Casualty First Quarter Results. “The resulting combined ratio of 97.4 was 1.6 points worse than the 95.8 posted last year,” a company statement adds.

The change was “driven by the highest level of first-quarter catastrophe losses since 2011,” A.M. Best reports.

For the first quarter of 2016, net premiums written (NPW) growth was 3.4%, lower than the 4.2% growth rate in the first quarter of 2015, but above A.M. Best’s projection for full-year 2016. “Premium growth was steady in personal lines, with many commercial lines showing signs of increasing competition.”

In terms of direct premiums written, these increased 4.4% in 2016 Q1 compared to being up 4.1% in 2015 Q1. “The three largest lines on a direct basis, private passenger auto liability, auto physical damage and homeowners/farm owners multi-peril, posted continued solid growth, with the auto lines growing at a rate exceeding the industry average,” the statement points out.

Related: P&C industry in the U.S. marks third consecutive underwriting gain, but surplus declines on investment results: A.M. Best

The higher Cat losses in 2016 Q1 combined with reduced net investment income and realized gains for the U.S. p&c industry compared to 2015 Q1. “This decline reflected increased market volatility early in the quarter and the continuing pressure on yields caused by the persistently lower rates on reinvestment,” the report explains.

Other results in 2016 Q1 include the following:

• pre-tax operating was income down 11.3% to US$13.6 billion;
• industry surplus growth was up by just 0.8% to US$685.2 billion; and
• return-on-equity fell to 2.0%, its lowest level of the past five years.