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Catastrophes push US P&C industry to $20B-plus underwriting loss in '17

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Catastrophes push US P&C industry to $20B-plus underwriting loss in '17

The U.S. property and casualty industry's net underwriting loss, as expected, grew exponentially in 2017 as insurers confronted the most active North Atlantic hurricane season in more than a decade and unprecedented autumn wildfires in California.

Based on S&P Global Market Intelligence's aggregation of 2017 statutory results for 2,452 individual P&C entities as reported on March 6, the industry's net underwriting loss swelled to approximately $20.16 billion from $2.10 billion for the same companies in 2016. Their combined ratio of 103.7% marked an increase from 100.7% in 2016 as the loss ratio widened to nearly 64.1% from 60.6%. The deterioration occurred even as the industry's fourth-quarter 2017 net underwriting loss narrowed to approximately $990.6 million from $1.73 billion in the year-earlier period.

The results should be considered preliminary in nature and are subject to change. Unless otherwise noted, industry-level results referenced in this article for 2016 and 2017 reflect the aggregation of individual company data available as of March 6. Citizens Property Insurance Corp. is perhaps the most noteworthy exclusion from the results referenced in this article. The Florida state-run company's net underwriting loss totaled $1.16 billion in 2017 as compared with a $128.8 million loss in 2016.

Aggregate net premiums earned for these individual entities of $537.38 billion marked an increase of 3.3% relative to the volumes produced by the same companies in 2016. Losses incurred, however, surged by nearly 9.1% to $344.26 billion. Loss adjustment expenses incurred and other underwriting expenses incurred grew by 4.7% and 2.2%, respectively, to $63.22 billion and $148.47 billion.

The relatively modest 2016 net underwriting loss put an end to a three-year streak of underwriting profitability for the industry. The significantly more sizable 2017 loss is likely to be the largest the industry has experienced since 2011. The combination of an historically active tornado season, large financial crisis-era losses for mortgage and bond insurers, and cyclical weakness in certain lines of business helped produce a net underwriting loss of $35.29 billion in that year among all filers.

Although 15 individual P&C entities produced net underwriting gains or losses in 2017 that marked an improvement of $100 million or more from 2016, six companies posted deterioration of $1 billion or more. A total of 58 entities showed year-over-year deterioration in their underwriting gains and losses of $100 million or more.

State Farm Mutual Automobile Insurance Co. had by far the largest amount of year-over-year improvement in its net underwriting result, but at $4.28 billion it still ranked as by far the largest underwriting loss for any individual P&C entity. The top-tier State Farm company's 2016 net underwriting loss totaled $7.20 billion.

Seven other entities also reported 2017 net underwriting losses of $1 billion or more: Nationwide Mutual Insurance Co. in an amount of $1.59 billion, State Farm General Insurance Co. ($1.57 billion), Liberty Mutual Insurance Co. ($1.54 billion), American International Group Inc.'s American Home Assurance Co. ($1.43 billion) and National Union Fire Insurance Co. of Pittsburgh Pa. ($1.07 billion), Factory Mutual Insurance Co. ($1.16 billion), and Berkshire Hathaway Inc.'s National Indemnity Co. ($1.16 billion). The latter company had the industry's largest year-over-year decline in underwriting profitability with a negative change of more than $1.97 billion from 2016's profit of $817.1 million.

Berkshire Hathaway estimated in its annual report that its P&C reinsurance business sustained approximately $2.4 billion in catastrophe loss events during 2017, including hurricanes Harvey, Irma and Maria; an earthquake in Mexico; a cyclone in Australia and wildfires in California. It experienced no significant natural catastrophes in either of the previous two years.

Joining National Indemnity with year-over-year declines in net underwriting gains and losses of $1 billion or more were Factory Mutual, State Farm General, State Farm Fire & Casualty Co., Liberty Mutual Insurance Co., and Everest Reinsurance Co. The $810.1 million net underwriting loss for the Everest Re Group Ltd. subsidiary put an end to a string of five consecutive years of annual underwriting profits in excess of $100 million.

Four AIG subsidiaries were among the 15 individual entities that showed improvement of $100 million or more in their net underwriting gains or losses on a year-over-year basis. The list also included two Progressive Corp. units, CNA Financial Corp.'s Continental Casualty Co., and Allstate Corp.'s Allstate Insurance Co. The $1.35 billion net underwriting profit for the Allstate subsidiary was an industry-high by a wide margin over the $779.2 million gain for Chubb Ltd.'s Federal Insurance Co. Allstate Insurance last posted a larger underwriting profit in 2013.

The absence of the sort of large reserve-building in which AIG engaged at the end of 2016 represented the primary factor in the industry's year-over-year improvement in underwriting profitability in the fourth quarter of 2017. Excluding AIG's U.S. P&C units, the industry's fourth-quarter 2017 net underwriting loss would have totaled $326.5 million and, for the fourth quarter of 2016, it would have produced a net underwriting gain of $3.04 billion.