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The U.S. property/casualty industry will likely post a small underwriting loss for 2016 after three previous years of underwriting profits, A.M. Best said in a new report.

A.M. Best’s report appears in line with a another analysis that noted the first nine months of 2016 were already in the red for U.S. property/casualty insurers. January through September 2016 produced a $1.7 billion net underwriting loss, according to a report from ISO, a Verisk Analytics business, and the Property Casualty Insurers Association of America.

A.M. Best cites several reasons for the likely 2016 underwriting loss. The ratings agency points out that favorable development of loss reserves isn’t as beneficial as it once was, and catastrophe losses have returned to more typical, higher average levels. Heightened competition in commercial lines is leading to underwriting deterioration, and more severe auto liability trends have also hurt, according to the report.

“The primary drivers are the increase in losses due to catastrophes and weather; the deterioration in personal auto liability, and continuing challenges in commercial auto liability from … distracted driving, increased miles driven and vehicles on the road due to lower gasoline prices, higher repair costs, and increased severity of liability claims,” A.M. Best said. The ratings agency added that “intensifying competitive conditions in commercial lines … have pushed premiums down and driven loss ratios up.”

With these trends in mind, A.M. Best is estimating a 100.7 combined ratio for 2016, and predicting a 100.3 combined ratio for 2017. This follows combined ratios from 2013 to 2015 of 96.4, 97.4 and 98.3, respectively.

Underwriting Positives

At the same time, however, A.M. Best said the negative trend in underwriting performance will be balanced out by “the industry’s solid capital base and potential for improvement in investment income, as rates begin to increase modestly and invested assets continue to grow.”

With that in mind, A.M. Best said the industry will still add to its surplus through “modest growth in net income.”

A.M. Best said estimated net premiums written will rise 2.7 percent for 2016 and 2.5 percent in 2017, versus a 4.4 percent, 4.3 percent and 3.3 percent annual increase in net premiums written in 2013, 2014 and 2015, respectively.

Digging deeper, expectations are that net premiums written will grow about 4 percent in 2016 for private passenger auto and homeowners, “as rate achievement driven by loss cost trends remains solid in those lines,” A.M. Best predicted.

Commercial auto is the only commercial lines segment expected to produce significant growth in net premiums written, with A.M. Best pegging the growth percentage for 2016 at about 3.5 percent.

With more severe loss trends in personal auto likely, it is not surprising that rates in this sector will likely increase more rapidly then they have in the past. A.M. Best argues, however, that more moderate homeowners rate changes will probably offset this.

A.M. Best expects a combined ratio of 107.8 in private passenger auto for 2016, and 106.9 for 2017. In 2013, 2014 and 201, that number was 101.6, 102.3 and 104.6, respectively.

By contrast, homeowners and farmowners multiperil should have a 97.2 combined ratio in 201, and 95.1 in 2017. Those numbers have been lower; from 2013 through 2015, the combine ratios in this sector were a respective 90., 92.7 and 91.8, A.M. Best said.

A.M. Best has maintained a stable outlook on the U.S. personal lines segment, and a negative outlook on the commercial lines segment and global reinsurance industry, for 2017.

A.M. Best’s full report is titled “Profitability Slides, Surplus Growth Slows and Competition Intensifies for Property/Casualty Insurers.”

Related:

• P/C Insurers Fell to $1.7 Billion Underwriting Loss in First 9 Months of 2016
• P/C Insurers Must Improve Underwriting Amid Competitive Pressures: Fitch
• Auto Losses Seen Cutting P/C Insurance Profits Until 2016
• P/C Insurers’ Underwriting Loss Worsened in First Half

Topics USA Carriers Profit Loss Auto Underwriting AM Best Property Casualty