U.S. P&C industry sees $2.9 billion profit in first nine months, despite higher cat losses

Underwriting performance in the U.S. property and casualty industry in the first nine months of this year still lagged behind 2013, but remained favorable, rating agency A.M. Best said Thursday.

Overall, the U.S. P&C industry did post an underwriting profit of $2.9 billion for the first three quarters of the year, the seventh consecutive quarter of doing so, A.M. Best said in a new special report. 

“While net premiums written (NPW) grew – to $381.4 billion from $364.5 billion year over year – the pace of that growth has slowed,” the report noted. Direct premiums written also grew 4.1% in the first nine months.

The pure loss ratio for the first nine months increased 2.0 points to 58.2%, mainly because of higher catastrophe losses and “reduced benefit from favorable development of prior years’ loss reserves,” its report said.

Catastrophe losses totaled $17.5 billion in the first nine months of 2014, a 25.2% increase from their 2013 level. The higher cat losses also increased the nine month combined ratio by 0.8 points to 97.9%.

“The harsh winter weather early in the year, as well as severe tornado/hail and thunderstorm events in many parts of the country through the rest of the year, drove net catastrophe losses to slightly more than $11.6 billion, or 6.6 points on the year-to-date combined ratio, compared with $9.2 billion and 5.1 points on the first nine months of 2013 combined ratio,” the report said.

In personal lines, after-tax net income was $11.8 billion for the first nine months, compared with about $12.3 billion for the same period last year. “The decline was attributed primarily to lower pretax operating income, offset in part by an increase in realized capital gains and lower income taxes,” A.M. Best said.

In commercial lines, the combined ratio was 97.6% for the first nine months, compared with 95.6% posted for the same period in 2013. Net income in that segment totaled $19.2 billion, down $9.0 billion from the prior year.

Policyholders’ surplus increased to $676.2 billion in the first nine months, a $13.0 billion increase from year-end 2013, and a 7.7% increase from the same period last year.

“However, lower underwriting and investment returns had a negative impact on return on equity, which declined to 5.6% from 7.8% in 2013,” the rating agency said.