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The U.S. property/casualty insurance industry is expected to post a net underwriting loss of $29.3 billion for 2017, A.M. Best Co. Inc. said Wednesday, with catastrophe losses mainly driving the sector to its second consecutive year of underwriting loss.
As a result, the Oldwick, New Jersey-based rating agency said in a statement, the industry 2017 combined ratio is estimated to deteriorate to 105.1% from 100.9% in the previous year.
Best’s Market Segment Report: U.S. Property/Casualty 2018 Review & Preview said the expected 2017 loss, on the heels of a $6.5 billion prior-year loss, will cause pretax operating income to slip to $14.8 billion from $41.1 billion in 2016.
“Hurricanes and wildfires caused extensive insured losses in the third and fourth quarters,” the report said. “Competitive pricing conditions were entrenched in most commercial lines, although by year-end, there was widespread recognition of the need for price increases in key (property/casualty) lines.”
The report also said pretax return on revenue for 2017 will fall to 2.7% from 7.8% in 2016. However, higher realized capital gains and lower tax payments, partially driven by the increased underwriting loss, will benefit net income, which will decline by a smaller margin of 37.7% to $26.3 billion for 2017.
Best said the increase in catastrophe losses beyond historical averages had a widespread impact on the industry, but a strong capital base allowed most companies in the primary insurance and reinsurance spaces to emerge with capital remaining comfortably supportive of their risks despite the decline in operating and net income.
For 2018, Best said it expects rate increases to remain in the low single digits for most lines throughout the country. However, rates for property lines will vary substantially, depending on 2017 experience and exposure to catastrophes, the report said.
Commercial and personal auto liability will likely see rate filings in the mid-single digits, driven by adverse development of prior years’ losses.
Best said it is maintaining a stable outlook on the U.S. personal lines segment for 2018 and revised its market outlook on the commercial lines segment to stable. The firm also said it is maintaining a negative outlook on the U.S. property/casualty reinsurance and global reinsurance sectors, reflecting the pronounced pressure on U.S. property catastrophe rates over the last several years, as alternative capital has set its sights on U.S. property catastrophe exposures.
The report said the Tax Cuts and Jobs Act, which President Donald Trump signed in December, is likely to have an overall favorable impact on the industry, driven primarily by the reduction in the U.S. corporate tax rate.
“A decrease in the value of deferred tax assets will offset some of that benefit,” the report said, “although companies with a net deferred tax liability will see that liability decline.”
There is no fundamental shift in the dynamic of the property/casualty reinsurance market, despite the huge catastrophe losses of 2017, and underwriting capacity remains “intact” for all lines of coverage, according a report issued Tuesday by Aon Benfield.