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Insurers’ underwriting loss in 2017 is first in six years: Fitch

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For the first time in six years, publicly traded property/casualty insurers and reinsurers in 2017 posted an aggregate underwriting loss, Chicago-based Fitch Ratings Inc. said Monday, as storms and wildfires ate into profits.

Fitch said in a special report that the underwriting results for 51 North American property/casualty insurers and reinsurers deteriorated as the group combined ratio increased by 5.1% to 102%, compared with 96.8% in the prior year.

Twenty-six in the group reported a calendar-year combined ratio above 100% 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, or 9.5% of earned premiums, up from $12.9 billion, or 3.9%, 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, Fitch said, with catastrophe losses representing 24% and 11.6% of earned premiums in 2017, respectively.

Aggregate operating earnings for this group in 2017 dropped 23% from the prior year. The aggregate operating return on equity fell by nearly 200 basis points to 4.6%. Only nine companies in the group reported an operating return on equity in excess of 10% for the year.

Operating performance is anticipated to improve in 2018, Fitch said, 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 help U.S. insurers' return on equity in 2018.

Profit expansion for reinsurers and 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 said it is maintaining a stable outlook for U.S. commercial, U.S. personal and global reinsurance sectors. Broad-based rating changes are unlikely in the next 12 to 24 months.

Personal and commercial lines also have stable sector outlooks, Fitch said, while the reinsurance sector's outlook is negative, as intense market competition and sluggish cedent demand have resulted in a soft reinsurance capacity.