U.S. Insurance Market Report – Property & Casualty (June 2017)

The property and casualty industry faces a second consecutive year of modest underwriting losses in 2017, according to S&P Global Market Intelligence's 2017 U.S. P&C Insurance Market Report.

S&P Global Market Intelligence projects an industry combined ratio of 100.7% for the year as compared with 100.5% in 2016, a result that was indicative of relative strength across several lines given the material negative effects of historically high loss ratios in the auto liability business, and a multibillion reserve charge recorded by American International Group Inc.

Pressures on growth and investment results should persist in the near term as the industry continues to face a market that exhibits varying degrees of softness in lines other than auto.

S&P Global Market Intelligence projects continued divergence between hard auto pricing and soft non-auto pricing, with lines such as workers' compensation and directors' and officers' liability facing headwinds from a top-line perspective. Projected P&C direct premiums written growth of 4.3% in 2017 anticipates particular strength in private and commercial auto writings. In the first quarter, direct premiums written in the private and commercial auto liability lines spiked by 8.3% and 7.7%, respectively. They rose by 7.3% in auto physical damage, including both private and commercial auto business. The full-year 2017 outlook anticipates growth in auto premiums at slightly lower levels than in the first quarter, but still near historical highs as carriers continue to address adverse claims experience with a broad set of rate increases.

From a profitability perspective, the projected 2017 personal lines combined ratio of 103.0% would mark an increase from the 2016 result of 102.5%, reflecting in an incrementally lower, but still historically high, private auto combined ratio, and a second consecutive year of narrowing margins in the homeowners business.

In the commercial lines, the projected 2017 combined ratio of 97.3% would mark modest improvement from 2016's result of 97.8%, based on expectations of lower underwriting losses in the general liability and commercial auto businesses.

Though 2017 began with particular optimism about the outlook for an uptick in macroeconomic expansion, a development that would bode well for insurance industry business volumes, growth in gross domestic product totaled an anemic 0.7% during the first quarter, and economists generally remain conservative in their forecasts for the near- and intermediate terms. The projections contemplate growth in commercial lines direct premiums written in the low-single digits for the next several years, including 2.2% in 2017.

Similarly, the post-U.S. presidential election spike in yields on the 10-year Treasury has subsided in recent months in an unwelcome development for a P&C industry that saw its net yield on invested assets erode by 14 basis points in 2016 to a meager 3.05%.

S&P Global Market Intelligence expects the industry's pretax return on equity will remain in the high-single digits, with the 2017 projection of 7.6% including the impact of reserve development reflecting the combination of slow improvement in investment results and the modest underwriting loss.

Access more data and insights from the full 2017 U.S. P&C Insurance Market Report.