U.S. insurers saw the industry’s surplus reach an all-time high of $752.5 billion in 2017, according to the Property Casualty Insurers Association of America, which marks a $51.7 billion increase from 2016.
Further, catastrophe losses reduced the industry’s net income to $36.1 billion in 2017, a 15.8 percent decline from a year earlier, according to the PCI study.
Also, net investment income increased to $49 billion in 2017, up from $46.6 billion the previous year. Net written premium growth was 4.6 percent in 2017 up from 2.7 percent in 2016.
Also, losses and loss adjustment expenses (LLAE) jumped 8.4 percent in 2017, exceeding the 3.3 percent earned premium growth. The rise in LLAE was driven by catastrophe losses, as three major hurricanes—Harvey, Irma, and Maria—hit the United States in the third quarter. The net underwriting loss reached $23.2 billion, exceeding the $4.7 billion underwriting loss for 2016.
“Three major hurricanes and devastating wildfires resulted in significant underwriting losses for insurers in 2017, suppressing the industry’s income but failing to erode its capital,” Neil Spector, president of ISO, an insurance industry information company that conducted the survey for PCI. “Moreover, investment gains, partially driven by changes in the tax law, drove the industry surplus to a record high. Insurers have a sophisticated protection system that includes reinsurance, insurance-linked securities, and their own capital, supporting their ability to pay claims after significantly worse catastrophes. Still, these catastrophes tested the ability of insurers to serve their customers and highlighted significant coverage gaps in flood insurance today.”
Spector said millions of Americans are uninsured or underinsured against flooding, and insurers have an opportunity to fill this void, he added.
“During the second half of 2017, insurers weathered one of the most challenging series of catastrophic loss events in U.S. history,” Robert Gordon, PCI’s senior vice president for Policy, Research, and International, said. “Yet, despite Hurricanes Harvey, Irma, and Maria, along with devastating wildfires in California, industry surplus grew to record levels. The catastrophe losses were largely offset by nearly $74 billion in realized and unrealized capital gains as a result of favorable market returns, which benefited in part from the anticipated positive impact of U.S. tax reform. U.S. insurers are hanging onto profitability through unusually favorable financial market developments. However, the increasing underwriting losses call into question catastrophic rate adequacy, particularly based on long-term global trends toward increasing catastrophic loss frequency and severity and predictions for another active catastrophe season in the U.S. this year.”
As the U.S. prepares for potentially active 2018 hurricane and wildfire seasons, insurers are in a strong position to meet customers’ needs, Gordon said.