US Property and Casualty Industry's Net Income Increased 69 Percent

The year-end 2018 statutory filings for the US property-casualty (P&C) industry showed a year-over-year 69 percent increase in net income to $59.2 billion in 2019, owing to lower losses from catastrophic events, favorable development of prior years' loss reserves, and higher net investment income, according to A.M. Best.

The rating agency said that net premiums written (NPW) also rose significantly, due in part to the 2017 Tax Cut and Jobs Act, as changes in accounting rules for internal transactions with foreign affiliates led to revisions and terminations of reinsurance agreements with off-shore affiliates. A.M. Best estimates that about half of the 10.8 percent increase in NPW to $617.4 billion in 2018 resulted from these changes, with rate and exposure changes also contributing to NPW growth.

The turnaround in underwriting performance was a key factor in the industry's improved operating performance, but higher net investment income also contributed to the 69 percent increase in net income for the industry, according to the rating agency. However, unrealized investment losses, driven primarily by equity market declines during the fourth quarter, resulted in a slight decline in policyholders' surplus for the year.

A.M. Best also said that incurred losses grew 4.4 percent, reflecting significantly lower catastrophe losses that were more than offset by higher retained losses because of reinsurance changes. The lower catastrophe levels also drove a slight decline in loss-adjustment expenses, which decreased by 0.5 percent in 2018.

Underwriting expenses for 2018 increased 10.7 percent, outweighing a 9.8 percent increase in net premiums earned (NPE), resulting in an underwriting loss of $2.9 billion. Despite the loss, it marked a significant improvement from the $25.3 billion underwriting loss in 2017, a year greatly affected by natural disasters. The statutory combined ratio dropped to 99.6 from 104.6 in the previous year despite the underwriting loss, reflecting the extent to which NPW exceeded NPE in the year, A.M. Best said.

The P&C industry's net investment income increased by 14 percent in 2018; however, unrealized investment losses of $43.8 billion, driven primarily by equity market declines during the fourth quarter, resulted in a slight decline in policyholders' surplus for the year, according to A.M. Best.

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