NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases its outlook on the U.S. Property/Casualty (P/C) insurance sector.
The U.S. P/C industry has experienced favorable operating trends since 2012 with the following prevailing positive conditions: capital growth, no major catastrophes until Q3 2017, abundant reinsurance capacity, and favorable, albeit slowing, reserve releases. Additionally, reported capital for the sector will be at a record high at year-end. Opposing these positive trends have been generally flat-to-soft market conditions across both personal and commercial lines due to the highly competitive primary markets and the 2017 losses arising from the natural disasters in the U.S. and its territories.
Highlighting 2017 was the industry’s resiliency – and risk transfer discipline – despite an atypical Atlantic hurricane season. The active 2017 Atlantic hurricane season brought with it significant insured losses (KBRA midpoint estimate of $115 billion in U.S. catastrophe losses). Ultimately, these catastrophe losses will result in U.S. carriers suffering $30 to $45 billion in underwriting losses for the full year 2017, with a projected combined ratio in the range of 104-106%. Countering the underwriting headwinds, the P/C industry has benefited from its high-quality investment portfolios and strong total returns. KBRA believes the sector is financially sound despite the magnitude of catastrophe losses incurred in 2017 and some below-average operating metrics.
The abundance of capital in the industry will continue to constrain rate increase pressures through 2018. KBRA believes that some testing of the market for rate increases will occur and some mild success may be achieved across the commercial lines segment. However, these price increases may be limited to loss-affected accounts and may not keep pace with ultimate loss costs.
Another aid to the industry’s capital growth and operating performance has been positive reserve development since 2006. However, KBRA notes signs pointing to a change in the reserve position across many U.S. carriers, with a potential deficiency in the next couple of years leading to an earnings headwind and a need for rate improvement.
Finally, coupled with the operating climate carrying over from 2017, the new corporate tax law and some of the uncertainty regarding its impact, in both the short and long-term, weighed into KBRA’s outlook for 2018.
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
