Net income for U.S. P&C industry for first nine months of 2016 down 26.8% compared to 9M 2015: A.M. Best

The property and casualty industry in the United States reported a US$2.3 billion net underwriting loss in the first nine months of 2016 and a 26.8% decline in net income compared with the same period in 2015, according to preliminary financial results from ratings firm A.M. Best Company.

The Oldwick, N.J.-based company outlined the financial review in a new Best’s Special Report titled A.M. Best First Look – 3Qtr 2016 U.S. Property/Casualty Financial Results and released on Monday. The data was derived from companies’ statutory statements that were received as of Nov. 16, representing an estimated 96% of the total P&C industry’s net premiums written, A.M. Best said in a press release.

The ratings firm reported that the nine-month underwriting loss is the industry’s first in four years. As well, the industry’s reported combined ratio deteriorated 2.7 points from the prior-year period to 99.7, “marking the worst nine month period-to-period comparison in the last four years,” the release noted.

Despite the nine-month net income decline to US$32.1 billion from US$43.9 billion in the previous year, policyholders’ surplus reached a record US$676.6 billion at the end of September 2016, driven by modest unrealized capital gains, US$2.7 billion of contributed capital, reduced stockholder dividends and a considerable reduction in other surplus losses. Growth in net premiums written also continued in 2016 but, at 2.8%, was lower than the 4.5% and 3.3% increases reported in the first nine months of 2014 and 2015, respectively.

On Sept. 16, A.M. Best reported that the U.S. P&C industry posted a US$2.3 billion underwriting loss for the first six months of the year and a 3.5% decline year-over-year in net investment income. The impact of catastrophes, lower favourable loss reserve development and challenging market conditions continued to pressure insurers, the ratings firm said in a report in September.

Among the highlights of the 6M report:

• The industry’s net income fell 29%, to US$21.5 billion through June 30, 2016, from US$30.2 billion last year;
• The industry’s combined ratio through first-half 2016 deteriorated to 100% from 97.8% for the same period in 2015;
• Realized capital gains declined 43.3% from their level for the first two quarters of 2015, to US$4.6 billion from US$8.1 billion;
• Pre-tax operating income fell 22.2% for the six-month period to US$20.7 billion. Pre-tax return on revenue of 8.2% marked a sharp drop from 10.9% through the first half of 2015, and represented the lowest level of return on revenue at this point in a year since 9.3% in 2012; and
• The industry’s direct premiums written (DPW) grew 3.8% from its prior-year level through June 30, 2016. Among the major lines of insurance, auto physical damage and private passenger auto liability saw the largest increases in DPW year-over-year, of 7.6% and 6.4%, respectively.