A.M. Best Sees $12 Billion P/C Insurance Underwriting Loss for 2018

February 27, 2019

The U.S. property/casualty industry is expected to report that 2018 was its third consecutive year with an underwriting loss. A new A.M. Best analysis projects an estimated net underwriting loss of $12.1 billion in 2018, which follows a $25.3 billion loss in 2017.

The underwriting loss in 2017 was $18 billion more than the underwriting loss in 2016.

The expected 2018 loss can be attributed primarily to catastrophes that included a pair of major fourth-quarter events. According to A.M. Best, while these 2018 losses declined by more than half from 2017, they remained elevated over historic averages.

The Best’s Market Segment Report, titled, “U.S. Property/Casualty 2019 Review & Preview,” says the P/C industry’s combined ratio is estimated at 101.5 for 2018, with U.S. catastrophe losses generating 6.2 points toward that figure.

For 2019, A.M. Best projects the combined ratio to improve slightly to 101.2, based on the expectation of more normalized losses.

However, given this lower underwriting loss last year and modestly higher net investment income, A.M. Best expects that the P/C industry’s pre-tax operating income will rebound to nearly $43 billion for 2018, more than doubling the prior-year level of $18.7 billion.

Due to lower realized capital gains and unrealized losses on the industry’s equity holdings, the authors of the report anticipate a modest decline in equity of $3.6 billion to $768.1 billion, a drop of just 0.5 percent. They predict a slight rebound for 2019, with a small decline in the underwriting loss and modestly higher net investment income.

Equity market declines in the fourth quarter of 2018 are expected to negatively affect the industry’s holdings of common and preferred stocks, with the overall level anticipated to decline for the first time since 2015. However, A.M. Best said it does not anticipate the P/C industry’s overall investment mix to change substantially in 2019.

AccoRding to the report, net premiums written jumped an estimated 8 percent in 2018, primarily as a result of U.S. tax reform, enacted in December 2017. Many companies that previously had ceded premiums to offshore affiliates substantially changed those arrangements in 2018 to reduce or eliminate the effect of the Base Erosion and Anti-Abuse Tax included in the Tax Cuts and Jobs Act. The growth in the commercial and reinsurance segments was particularly impacted by these changes.

The market segment report also details A.M. Best’s expectations for the diverse lines of business that comprise the P/C industry along with the rating agency’s market segment outlooks for these segments. Overall, ratings agency expects the P/C industry to remain “robustly capitalized, loss costs to remain relatively benign given no immediate signs of spiking interest rates or inflation and catastrophe losses to be more in line with long-term historic averages.”

Source: A.M. Best’s Market Segment Report

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