Jun. 29 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.
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.