OLDWICK, N.J.--(BUSINESS WIRE)--The U.S. property/casualty (P/C) industry is expected to post a second consecutive year of underwriting profitability in 2014, despite increased catastrophe losses and reduced benefit from favorable development of prior years’ loss reserves, according to a new A.M. Best special report.
The 2015 Review & Preview Best’s Special Report, titled “U.S. P/C Industry Expected to Produce 2nd Consecutive Underwriting Profit,” states that A.M. Best estimates the industry combined ratio to be 97.2 for 2014, a 0.8 point deterioration from 96.4 the previous year. Growth in net premiums written (NPW) fell to 3.9% in 2014 from 4.4% in each of the two prior years, with most lines of insurance posting lower NPW growth driven by a moderation in rate increases, particularly in the second half of the year. Pressure on operating and net income from low investment yields continues to hamper results, with the industry’s net income expected to decline 10.5% to USD 55.2 billion in 2014 on lower underwriting income and capital gains.
A.M. Best maintains a negative outlook on the commercial and reinsurance segments, while the outlook for personal lines is stable.
The industry’s capital base is projected to be at new record levels of USD 710.6 billion at year-end 2014 and USD 724.9 billion at year-end 2015, increases of 6.2% and 2.0%, respectively. For 2015, the combination of catastrophe losses returning to a normalized level, a reduction in rate increases in virtually all lines and a lower amount of favorable development of prior years’ loss reserves is expected to result in another modest deterioration in underwriting performance, with the industry combined ratio deteriorating to 99.1. If A.M. Best’s forecast proves correct, it would mark the first time since the early 1970s that the industry’s underwriting has been profitable in three consecutive calendar years.
However, while the 2014 results and the 2015 projections are mostly positive, they are offset by overarching segment issues. For the commercial lines segment, A.M. Best has continuing concerns with the ultimate adequacy of loss reserves; increasing competition driven by technological advances and abundant capital; and the poor investment environment. The reinsurance sector remains well capitalized, but compressed investment returns and underwriting margins are straining profitability and ultimately will weigh on financial strength. Equally important is the continued emergence of new forms of competition in the U.S. (and global) reinsurance segments. Conversely, the stable outlook for personal lines reflects the segment’s ability to manage exposure to weather and catastrophe losses through rates, underwriting actions and coverage revisions in recent years.
To access a copy of this special report, which includes a breakdown of the personal and commercial lines segments and reinsurance sector, along with 2014 rating trends, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=233411.
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