The insurance industry is facing challenges from the economy and pressures on formerly stable lines, but it still offers opportunities to skilled individuals who understand risk, Guy Carpenter & Co. L.L.C. said Monday.

The 2017 edition of the reinsurance intermediary’s annual report, Plotting a Path in a Changing Market, which focuses on risk and performance of U.S. property/casualty insurers, found that while the industry is well capitalized and market sentiment is mostly positive, there is evidence of economic and market-based resistance that will challenge profitable growth, Guy Carpenter said in a statement.

“On the surface, 2016 represented a record-setting year for the P&C insurance industry, with surplus reaching its highest level in history,” Tim Gardner, president of North America operations for Guy Carpenter, said in a statement. “Rate reductions continued to moderate, and there was optimism following the 2016 election given the potential for tax cuts and deregulation.”

Yet, Mr. Gardner added, “red flags remained, and a closer look at the individual metrics contributing to the growth in surplus revealed interesting trends.” 

In 2016, emerging risks, catastrophe frequency and severity, and shifting capital needs all contributed to a 0.4% industry underwriting loss, its first calendar-year underwriting loss since 2012, according to the report.

Reduced margins and adverse development reflected a competitive environment supported by excess capital levels, direct written premium growth slowed, and higher realized and unrealized capital gains were skewed by the performance of some large companies who use underwriting cash flow to fund investments.

The average large property/casualty insurer saw its accident-year loss ratio increase by 2% over 2015, according to the report. The auto segment posted losses due to both frequency and severity shifts. Only 10 and 30 of the top 100 personal auto and commercial auto writers, respectively, made an underwriting profit in 2016.

The personal auto losses came to a line normally considered the cornerstone of profitability. The industry’s accident-year loss ratio increased to 67% in 2016 from 62% in 2013, and its 10-year run of favorable prior period development ended.

“The personal auto losses forced smaller companies to rethink strategy and mix of business as the large writers continued to engage in the predictive modeling and marketing war,” Julia Chu, managing director, said in a statement.