A.M. Best Special Report: U.S. Property/Casualty Industry Records $6.6 Billion Underwriting Loss in 2016 on Catastrophes, Lower Reserve Development

OLDWICK, N.J.--()--The U.S. property/casualty (P/C) industry recorded a $6.6 billion underwriting loss in 2016, following three consecutive years of underwriting profitability, according to a new A.M. Best special report. Coupled with the continued downward trend in investment income, the swing in underwriting performance eroded net income by 24.4% to $41.8 billion.

The Best’s Special Report, “U.S. P/C Industry Records Underwriting Losses Driven by Catastrophes and Lower Favorable Reserve Development,” states that catastrophe activity in the United States, in particular, Hurricane Matthew, cost P/C insurers $24.9 billion in 2016 and contributed 4.8 points to the industry’s 2016 combined ratio, up from 3.4 points in the prior year. In addition, the industry’s accident-year combined ratio increased by 2.1 points, while the benefit from favorable development of prior accident year loss reserves declined. The combination of these factors drove the reported 2016 combined ratio to 100.9 from 98.1 in the prior year.

Despite the lower level of net income, policyholders’ surplus grew by 4.5% to $699.1 billion in 2016 from $669.0 billion in 2015. The growth reflected a substantial swing in unrealized gains, following the run-up in U.S. equity markets following the election of President Donald Trump, along with a lower level of stockholder dividend payments. Pre-tax return on revenue dropped to 7.7% from 11.0% in 2016, while after-tax return on equity fell to 6.0%.

The commercial lines segment experienced a significant decline in pre-tax operating income in 2016, driven by a 90% drop in underwriting income to $427 million from $4.7 billion in 2015. This decline contributed to a 2.7-point deterioration in the combined ratio to 99.7 from 97.0 in the previous year. The personal lines segment suffered its largest underwriting loss since 2012, and recorded a combined ratio of 102.5.

The push toward enhanced technology in the P/C industry has had a cost, as reflected in increased underwriting expenses; however, the growth rate of incurred losses and loss adjustment expenses outstripped the growth of underwriting expenses in 2016. Despite this, companies continue to invest in technologies to improve their ability to collect and leverage data, and their efforts to provide “value added” services to insureds can have the dual benefit of increasing customer retention and positively impacting loss ratios over the long run.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=261529.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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Contacts

A.M. Best
Anthony Diodato, +1-908-439-2200, ext. 5704
Managing Director
anthony.diodato@ambest.com
or
Raymond Thomson, CPCU, ARe, ARM, +1-908-439-2200, ext. 5621
Associate Director
raymond.thomson@ambest.com
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com
or
Michelle Baurkot, +1-908-439-2200, ext. 5314
Director - Industry Research,
Credit Rating Criteria - Research and Analytics
michelle.baurkot@ambest.com

Contacts

A.M. Best
Anthony Diodato, +1-908-439-2200, ext. 5704
Managing Director
anthony.diodato@ambest.com
or
Raymond Thomson, CPCU, ARe, ARM, +1-908-439-2200, ext. 5621
Associate Director
raymond.thomson@ambest.com
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com
or
Michelle Baurkot, +1-908-439-2200, ext. 5314
Director - Industry Research,
Credit Rating Criteria - Research and Analytics
michelle.baurkot@ambest.com