The U.S. property & casualty industry’s operating performance deteriorated sharply in 2011, as catastrophe-related losses wrought havoc on underwriting results and led to the industry’s largest underwriting loss since 2002, reports A.M. Best Co. Inc.
The insurance industry rating agency says that P&C insurers were impacted by an unprecedented number of natural catastrophe events in the U.S. and abroad in 2011, resulting in catastrophe-related losses that were more than double the total reported in 2010.
As a result, it projects that all three segments — personal lines, commercial lines and U.S. reinsurers — are expected to report relatively large underwriting losses, the industry’s policyholders’ surplus is anticipated to decline modestly, and return measures are expected to be in the low single digits.
A.M. Best Co. estimates net premiums written increased 3.5% to US$442.0 billion in 2011, as improved underwriting and pricing discipline generated favourable pricing trends. However, it also estimates that total statutory pretax catastrophe-related losses were approximately US$44.1 billion in 2011, up from an estimated US$19.6 billion paid in 2010.
The rating agency notes that rating downgrades outnumbered upgrades for the first time since 2005. A.M. Best says it has maintained a stable outlook for the personal lines and U.S. reinsurance segments in 2012. The outlook for the commercial lines segment remains negative due to the incremental impact that rate increases will have over the next year; inadequate rates in select lines of business; decreasing reserve adequacy levels; and the sluggish economic recovery.
Looking ahead, the firm says that while pricing discipline seems to be taking hold, it believes a traditional “hard” market is likely at least a year or two away. “While the industry’s operating performance is expected to improve in 2012, insurers still face a challenging environment, with relatively weak underwriting results and lackluster investment returns expected to influence operating results over the next year,” it concludes.