The private U.S. property/casualty insurance industry saw its net income after taxes drop to $22.4 billion in nine-months 2017 from $32.1 billion in nine-months 2016—a 30.3 percent decline—and its overall profitability as measured by its annualized rate of return on average policyholders’ surplus fall to 4.2 percent from 6.3 percent, according to the latest report we published with the Property Casualty Insurers Association of America.
The industry’s losses and loss adjustment expenses (LLAE) rose 11.3 percent in nine-months 2017, significantly exceeding the 7.6 percent increase a year earlier. The increase was driven by catastrophe losses, with three major hurricanes—Harvey, Irma, and Maria—making landfall in the United States in the third quarter. The net underwriting loss reached $20.9 billion, far exceeding the $1.7 billion underwriting loss for nine-months 2016.
Costs could have been higher
But the costs for insurers could have been much higher if Irma, for example, had taken its predicted track through Miami.
Net written premium growth rebounded to 4.1 percent for nine-months 2017, the same growth rate as for nine-months 2015 and an improvement from 2.8 percent for nine-months 2016. Net investment income increased to $35.4 billion in nine-months 2017 from $33.2 billion for nine-months 2016.
Despite the underwriting losses, investment gains pushed the industry’s surplus to a new all-time-high value of $719.4 billion as of September 30, 2017, an $18.6 billion increase from $700.8 billion as of December 31, 2016.
In the years to come, many experts believe that catastrophic events will become more frequent and severe because of climate change. While the industry remains well capitalized and prepared to meet claims, the events have highlighted the need for better analytics to help insurers manage and price catastrophic risk. It’s also illustrated the need for broader coverages, such as flood, to meet the changing needs of communities.
At Verisk, we’re working hard to provide the necessary resources to meet insurers’ needs.