Fitch: P/C Carriers Face First Underwriting Loss in 6 Years

Property and casualty (re)insurers (P&C) endured a trying 2017 with a compilation of latest financial results for a group of public companies showing an aggregate underwriting loss for the first time since 2011, according to Fitch Ratings in a new report.

GAAP financial results for 51 North American P/C (re)insurers show a deterioration of underwriting results as the group combined ratio increased by 5.1 points to 102.0 percent, compared to 96.2 percent in the prior year.

“Not surprisingly, an extraordinary sequence of second-half storms and wildfires led to significantly higher catastrophe losses,” said Chris Grimes, director.

In fact, 26 companies in the group reported a calendar-year combined ratio above 100 percent in 2017, compared with 11 companies with an underwriting loss in 2016.

Net incurred catastrophe losses reported by the group in 2017 increased to $33.7 billion (9.5 percent of earned premiums), up from $12.9 billion (3.9 percent) in the prior year, largely related to Hurricanes Harvey, Irma and Maria, along with a series of California wildfires. The reinsurance and Florida specialist sub-segments were hit particularly hard, with catastrophe losses representing 24 percent and 11.6 percent of earned premiums in 2017, respectively.

Bottom line results deteriorated meaningfully for this group in 2017, with aggregate operating earnings declining 23 percent from the prior year. The aggregate operating return on equity fell by nearly 200bp to 4.6 percent. Only nine companies in the group reported an operating ROE in excess of 10 percent for the year.

Operating performance is anticipated to improve in 2018, assuming a reversion toward historical average annual insured catastrophe losses. Near-term premium growth will be positively influenced by price increases in property and automobile segments and exposure changes from moderately better economic conditions. Corporate income tax rate reductions will positively influence U.S. insurers’ return on equity in 2018.

Still, profit expansion for (re)insurers is hindered by competitive pricing conditions in most segments and low yields on invested assets. A larger proportion of individual companies will likely return to an underwriting profit in 2018, but many will remain challenged to generate adequate returns on capital.

Fitch maintains a stable outlook for each of the sectors covered in this report (U.S. commercial, U.S. personal, and global reinsurance). Broad-based rating changes are unlikely in the next 12-24 months. Personal and commercial lines also have stable sector outlooks. Conversely, the reinsurance sector’s outlook is negative, as intense market competition and sluggish cedent demand have resulted in a soft reinsurance capacity.

Fitch’s “North American Property/Casualty Insurers’ 2017 Results” is available at www.fitchratings.com

Source: Fitch ratings