P&C industry combined ratio for Q1 2018 lowest in past 5 years

The U.S. property & casualty industry posted a combined ratio of 94.8 in first-quarter 2018, the lowest three-month combined ratio of the last five years, according to a new Best’s Special Report, titled, “First Look—1Q2018 U.S. Property/Casualty Financial Results.” The combined ratio improved 4.9 points from the prior year.

Related: Fitch Ratings unveils year-end financial results for P&C insurers

First quarter recap

Following last year’s extreme weather, CAT losses have returned to a more normalized level during the first quarter. A.M. Best estimates that catastrophe losses accounted for 3.4 points on the three-month 2018 combined ratio, down from an estimated 6.0 points during the same time period last year.

The significant improvement to net underwriting income during the first three months of 2018 was driven by growth in net premiums written (NPW) of 15.2%, which offset a 3.1% increase in losses and loss adjustment expense incurred, and a 12.7% rise in both underwriting expenses and policyholder dividends. NPW growth was aided by a combined $5.3 billion increase in premiums retained in the U.S. at four Chubb Group companies, as members of the legacy ACE intercompany pool terminated reinsurance agreements with Bermuda and Swiss affiliates and entered into a new agreement in which ACE American is now the lead company.

Related: Insured losses from May’s ‘Ring of Fire’ near $2.5 billion, says new report

Not everything’s pointing up

Despite the growth in net income during the first quarter of 2018, industry surplus decline slightly from the end of 2017 to $734.1 billion due primarily to a combined $7.1 billion change in unrealized losses at two Berkshire Hathaway companies and State Farm, and stockholder dividend payments totaling $6.1 billion at Allstate, Federal Insurance and National Indemnity.

The data contained in this report are from companies whose three months 2018 interim period statutory statements were received as of May 17, 2018. These companies account for an estimated 95% of total industry net premiums written and 94% of policyholder surplus. The full report can be found on the A.M. Best website.

Related: 2017: A bad year for commercial lines, says Fitch Ratings report