The most costly Q1 since Northridge quake for U.S. P&C sector: ISO / PCI

by Artemis on June 26, 2017

The private U.S. property & casualty insurance sector has suffered the most costly first-quarter for catastrophe losses since the 1994 Northridge earthquake this year, with $7.3 billion of catastrophe claims helping to lower its net income for the quarter by 42.2%.

U.S. property & casualty insurers reported net income after taxes had declined from $13.4 billion in the first-quarter 2016 to just $7.7 billion in the first-quarter 2017 from, a 42.2% decline.

At the same time the overall profitability of the P&C insurance sector, as measured by its annualised rate of return on average policyholders’ surplus, dropped to 4.4% from 7.9%

Data from ISO, a Verisk Analytics business, and the Property Casualty Insurers Association of America (PCI), shows that profitability has been particularly poor for the sector so far this year and with high levels of weather and catastrophe losses the culprit, reinsurance firms and also insurance-linked securities (ILS) funds have been supporting P&C insurers capital needs.

That support may continue to be needed, as the second-quarter has also seen very high levels of U.S. severe convective storm activity and losses, which again can result in reinsurance support from traditional players and ILS funds being required.

$7.3 billion of direct catastrophe losses were experienced by the U.S. P&C sector in Q1 2017, which is the highest first-quarter catastrophe toll since the 1994 Northridge earthquake according to ISO and PCI, and also $2.3 billion above the total for the first-quarter of 2016.

Thanks to the high level of loss activity, U.S. P&C insurers reported a combined ratio deteriorated that increased to 99.6% for first-quarter 2017, up from 97.4% a year prior.

Beth Fitzgerald, Senior Vice President, Industry Engagement at ISO, explained; “Three major wind and thunderstorm events each resulted in more than $1 billion in damages in first-quarter 2017. That’s the first time we’ve seen three events of that magnitude in the first quarter in more than 60 years.

“Fortunately, insurers are well capitalized, and short-term volatility in catastrophe losses is not affecting their ability to provide coverage and pay claims. They’re also seeing some acceleration in premiums and investment income.”

First-quarter 2017 catastrophes losses are down to 13 events in the period, with the three largest all including hail and tornadoes and accounting for $4.4 billion of direct losses to the P&C insurance segment.

With hail and tornado losses having continued at a high level through the second-quarter so far, it looks likely that aggregation of these losses will have continued and some of the larger U.S. P&C specialists will be seeing these eating through the retentions on aggregate reinsurance arrangements.

It should be noted that the loss experience remains manageable for insurers in the P&C sector, but it is notable that the year has started off with such a heavy toll. Should loss activity continue at above average pace through the remainder of the year some P&C insurers could find their profitability increasingly threatened, and come could find their reinsurance coming into play later in the year.

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