The U.S. property and casualty industry is likely to produce its highest net loss and combined ratios in the homeowners line since 2011 thanks in large measure to hurricanes and wildfires.
S&P Global Market Intelligence had projected a net loss ratio of 57% and a combined ratio of 95.8% for the business line in full-year 2017, up from 54.5% and 93.1% in 2016, assuming an average year for catastrophe losses and excluding results for entities under coverage as state funds or residual markets. But events like Hurricanes Harvey, Irma and Maria drove a surge in the direct incurred loss ratio for the third quarter and California wildfires are likely to create an unfavorable comparison in the fourth quarter.
The industry's homeowners direct incurred loss ratio through the first nine months of 2017 increased to 69.8% from 54.5% in the year-ago period, according to an analysis of disclosures on Part 1 of quarterly statutory statements. The direct incurred loss ratio had not exceeded 58.3% for a comparable period since 2011 when it hit 86.8% as the industry suffered from a record year for tornadic activity. The industry's homeowners combined ratio in full-year 2011 totaled 122.3%, the peak level within a five-year stretch during which the result regularly exceeded 100%.
The last time the industry produced a homeowners direct incurred loss ratio that was comparable to the result for the first nine months of 2017 was in 2002. The 69.5% homeowners direct incurred loss ratio for the first three quarters of that year served as a precursor to a net loss ratio of 68.5% and a combined ratio of 109.3% in the business line for the full calendar year.
Our original 2017 projection would have marked a fifth-consecutive year of a sub-100% homeowners combined ratio for the industry. Given the higher-than-expected catastrophe load, however, the industry is on track to generate its first homeowners combined ratio of more than 100% since 2012. That year, the direct incurred loss ratio for the homeowners line totaled less than 58.3% for the first nine months of the year, but the net loss ratio for the full year hit 63.2% in part as a result of the timing of the landfall of Superstorm Sandy during the fourth quarter.
For the third quarter of 2017, the homeowners direct incurred loss ratio of 80.7% represented the industry's highest such result in a third quarter since 2011. The quarter's result would have been approximately 0.8 percentage point higher had Florida's Citizens Property Insurance Corp. been included in the data. The Florida state-run insurer produced an underwriting loss across business lines of $1.11 billion in the third quarter. Its direct incurred loss ratio in the homeowners line spiked to 229.1% for the period from 23.7% in the third quarter of 2016.

The industry's direct homeowners losses had been trending unfavorably for eight consecutive quarters entering the third quarter of 2017. The last favorable year-over-year comparison in the direct incurred loss ratio in that line occurred in the second quarter of 2015.
Homeowners was not the only business line negatively impacted by third-quarter 2017 catastrophes. The commercial multiperil line and the fire and allied lines both showed sharply higher direct incurred loss ratios during the period.
Excluding state funds and residual markets, the commercial multiperil direct incurred loss ratio increased to 82.8% in the third quarter from 48.4% in the year-earlier period. It was the sixth-straight unfavorable year-over-year comparison and by far the largest for the business line. On a year-to-date basis, the direct incurred loss ratio of 63.2% was the industry's highest for a comparable period since 2011.
The fire and allied lines generated a 197.7% direct incurred loss ratio in the third quarter, up from 70.4% in the year-earlier period. It was the fifth unfavorable comparison in the last six quarters for those lines. The year-to-date result of 117.6% was up from 64% in the first nine months of 2016, and it marked the highest direct incurred loss ratio in the fire and allied lines for a comparable period since 2005. For the purposes of this analysis, the year-to-date and quarterly fire and allied lines consolidations exclude earthquake business and, as a result, differs from other S&P Global Market Intelligence rollups of the business lines.
Both Citizens and Texas Windstorm Insurance Association, the Lone Star State's insurer of last resort for wind and hailstorm coverage along the Gulf Coast, write significant amounts of allied lines business. Citizens also classifies a portion of its business on the fire line, and its third-quarter direct incurred loss ratio in the combination of the two lines totaled 757.8%, up from 21% in the year-earlier period. Texas Windstorm Insurance Association's allied lines direct incurred loss ratio hit 857%, up from a negative 3.9% in the third quarter of 2016.
All told, the industry's fire and allied lines third-quarter 2017 direct incurred loss ratio would have totaled 209% had Citizens and Texas Windstorm Insurance Association been included in the analysis.
Similar to the homeowners line, S&P Global Market Intelligence originally projected that the net loss and combined ratios would rise in 2017 in the commercial multiperil business and the fire and allied lines. At 103.6%, the projected 2017 commercial multiperil combined ratio would have been the industry's highest such result since 2012. The projection in the fire and allied lines, including earthquake business, called for a combined ratio of 90.5%, which also would have been a five-year high.
The magnitude of the losses through the first nine months of 2017 and the reports of damage from fourth-quarter wildfires suggest the original full-year projections will prove overly optimistic to varying degrees. The fire and allied lines combined ratios in both 2011 and 2012 exceeded 100%, for example, and the direct incurred loss ratios for the first nine months of each of those years were more than 45 percentage points lower than for the comparable period of 2017.
S&P Global Market Intelligence intends to revise the P&C industry projections in early 2018.
