U.S. P&C insurers report US$4.7 billion net underwriting loss in 2016: Verisk Analytics

Private property and casualty insurers in the United States suffered a US$4.7 billion net underwriting loss in 2016 following a US$8.9 billion net underwriting gain in 2015, according to ISO, a Verisk Analytics business, and the Property Casualty Insurers Association of America (PCI).

The insurers also experienced a 25% drop in net income after taxes to US$42.6 billion from US$56.8 billion in 2015, Verisk Analytics and PCI noted in a joint press release on Monday.

Insurers’ combined ratio deteriorated to 100.7% in 2016 from 97.8% in 2015, and net written premium growth slowed to 2.7% in 2016 from 3.5% a year earlier. Net investment income dropped to US$46.3 billion in 2016 from US$47.2 billion in 2015, and realized capital gains decreased to US$7.3 billion from US$9.4 billion, resulting in US$53.7 billion in net investment gains for 2016, down US$3 billion from a year earlier, the release said.

Direct insured property losses from catastrophes striking the United States totalled US$21.6 billion in 2016, up from US$15.2 billion a year earlier and above the US$19.2 billion average direct catastrophe losses for the past ten years.

Commercial lines direct written premiums expanded to US$258.6 billion in 2016, a 3.1% increase from a year earlier, according to estimates from ISO MarketStance. The increase in direct premiums was mostly the result of exposure growth in small commercial and middle market risks, such as specialty trade contractors, building construction, real estate, and auto dealers, Verisk Analytics reported.

“Catastrophe losses continued to hurt insurer performance in 2016,” Beth Fitzgerald, president of ISO Solutions, said in the release, pointing out that there were 43 catastrophe events in 2016, the highest number of such events since 1980. “But last year’s catastrophe losses weren’t the only ones that affected insurers. Legacy losses also continued to hurt performance and were evidenced by reserve charges and several special reinsurance transactions designed to limit the development of carried reserves. Those legacy issues should serve as a strong reminder that insurers need to engage in disciplined underwriting now or pay the price for it later,” Fitzgerald said.

Robert Gordon, PCI’s senior vice president for policy development and research, added that “industry operating results during 2016 continued to hover near long-term trend lines – although with deterioration since 2013 in almost all categories, including premium growth, incurred loss and loss adjustment expenses, underwriting gains, and pretax income. Results were dragged down in part by soaring losses in personal and commercial auto, where accident frequency and severity continue to outpace premium increases and evidence suggests adverse development in reserves.”

For the fourth quarter of 2016, insurers’ net income after taxes fell to US$10.8 billion in fourth-quarter 2016 from US$12.7 billion in fourth-quarter 2015, and their combined ratio worsened to 104.1% in fourth-quarter 2016 from 100.4% a year earlier. Their annualized rate of return on average surplus dropped to 6.2% in Q4 2016 from 7.6% a year earlier, the release said. And net written premiums rose US$2.9 billion, or 2.4%, to US$124.4 billion in fourth-quarter 2016 from US$121.5 billion in Q4 2015.

Since 1971, ISO has been providing information about P&C insurance risk. For a broad spectrum of commercial and personal lines, ISO provides statistical, actuarial, underwriting and claims information and analytics; compliance and fraud identification tools; policy language; information about specific locations; and technical services. ISO serves insurers, reinsurers, agents and brokers, insurance regulators, risk managers and other participants in the P&C insurance marketplace.

PCI is composed of nearly 1,000 member companies, representing the “broadest cross section of insurers of any national trade association,” the release said. PCI members write more than US$183 billion in annual premium, 35% of P&C insurance in the U.S. Member companies write 42% of the U.S. auto insurance market, 27% of the homeowners market, 32% of the commercial property and liability market, and 34%of the private workers’ compensation market.