US P&C industry records $6.6bn underwriting loss in 2016

The US property/casualty (P/C) industry recorded a $6.6 billion underwriting loss in 2016, following three consecutive years of underwriting profitability, according to an AM Best special report.

Coupled with the continued downward trend in investment income, the swing in underwriting performance eroded net income by 24.4 percent to $41.8 billion, according to the ratings agency.

Catastrophe activity in the US, in particular, Hurricane Matthew, cost P/C insurers $24.9 billion in 2016 and contributed 4.8 points to the industry’s 2016 combined ratio, up from 3.4 points in the prior year, according to The Best’s Special Report 'US P/C Industry Records Underwriting Losses Driven by Catastrophes and Lower Favorable Reserve Development'.

In addition, the industry’s accident-year combined ratio increased by 2.1 points year on year, while the benefit from favorable development of prior accident year loss reserves declined. The combination of these factors drove the reported 2016 combined ratio to 100.9 percent from 98.1 percent in the prior year.

Despite the lower level of net income, policyholders’ surplus grew by 4.5 percent year on year to $699.1 billion in 2016. The growth reflected a substantial swing in unrealized gains, following the run-up in US equity markets following the election of President Donald Trump, along with a lower level of stockholder dividend payments. Pre-tax return on revenue dropped to 7.7 percent from 11.0 percent in 2016, while after-tax return on equity fell to 6.0 percent.

The commercial lines segment experienced a significant decline in pre-tax operating income in 2016, driven by a drop in underwriting income to $427 million from $4.7 billion in 2015. This decline contributed to a 2.7-point deterioration in the combined ratio to 99.7 percent from 97.0 percent in the previous year. The personal lines segment suffered its largest underwriting loss since 2012, and recorded a combined ratio of 102.5.

The push toward enhanced technology in the P/C industry has had a cost, as reflected in increased underwriting expenses; however, the growth rate of incurred losses and loss adjustment expenses outstripped the growth of underwriting expenses in 2016.

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