P&C outlook in 2019 is mostly stable after rocky past two years: AM Best

In 2017, the property & casualty insurance segment suffered near-record high in U.S. catastrophic losses. mainly from Hurricanes Harvey, Irma and Maria. Hurricane Michael and wildfires in California near the end of 2018 propelled a second year of catastrophic losses above the long-term average.

AM Best’s Market Segment report estimates that the U.S. P&C industry had net catastrophe losses of over $37 billion in 2018 — down from $53 billion in the prior year, but still the second highest since 2011. Projections for 2019 reflect a further decline in net catastrophe losses to five points (or approximately $31 billion), which is more in line with an average year.

AM Best’s P&C industry’s combined ratio is estimated at 101.5 for 2018, with U.S. catastrophe losses generating 6.2 points toward that figure. For 2019, AM Best projects the combined ratio to improve slightly to 101.2, based on the expectation of more normalized losses.

Related: 2019 forecast predicts strong growth for independent agents, brokers

Market segment outlook

• U.S. personal auto: AM Best is maintaining its stable outlook for 2019. The key drivers are the robust risk-adjusted capitalization of most writers in the segment, innovation in enterprise risk management and the growing use of technology and data analytics in underwriting, rate-making and claims. Notably, severity trends continued to rise, as medical expenses and the repair of increasingly sophisticated vehicles continue to become more costly, with no signs of diminishing.
• U.S. homeowners: AM Best is maintaining its stable outlook for 2019. The key drivers for this outlook are the segment’s persistently strong risk-adjusted capitalization, ongoing pricing and underwriting initiatives, and generally favorable operating performance despite elevated catastrophe activity in the second half of 2018. For the most part, segment companies were able to absorb the numerous catastrophe losses in 2018 without a material impact on their balance sheets. Core underwriting discipline and improved enterprise risk management capabilities, including a greater focus on risk selection and concentration management, remain critical to homeowners insurers’ stability and long-term viability.
• Workers’ compensation: AM Best has a stable outlook on the workers’ compensation segment for 2019, despite rate decreases that will likely cause profit margin compression over the near term. Slower growth and a slight increase in the combined ratio is predicted for 2019. However, the line still remains profitable due in part to the decline in claims frequency, the leveraging of risk management tools and reserve releases. Reduced lost-time claims frequency noted across much of the sector is due to the investment and improvement in workplace safety.
• Excess & surplus lines: AM Best is maintaining its stable outlook on the surplus lines segment. Standard lines continue to creep into the surplus lines market, a trend AM Best expects to continue in 2019. E&S carriers face the same challenges as the commercial lines market: competitive pressure from market participants with favorable operations and strong capital positions, investment returns that are less than optimal and declining opportunities for favorable reserve redundancy.
• Commercial auto: AM Best is maintaining its negative outlook on the commercial auto segment for 2019. Although the line’s overall results are likely to show some improvement in 2019 after several years of rate increases, prior years’ loss reserves continue to adversely affect current calendar year results.
• Medical professional liability: AM Best is maintaining its negative outlook for 2019. The key drivers of this outlook are ongoing pressures of shrinking demand, prolonged soft market conditions and diminishing reserve redundancies, as well as concerns about potential increases in claims severity and in the frequency of high severity losses. Profitability trends have been negative in recent years and deterioration in underwriting results is likely to continue in 2019, as the segment’s excess capital and capacity has hampered a meaningful improvement in pricing. Further fallout from these trends may also spur acceleration of merger & acquisition activity.
• Professional liability: AM Best is maintaining its stable outlook on the professional liability segment. The segment is benefiting from available capacity due to shrinking opportunities in other segments and healthy P&C balance sheets. However, a number of challenges persist, primarily pricing inadequacy, growing competition from new insureds and emerging trends (#MeToo, cyber and technological developments) that could lead to systemic losses.
• Surety: AM Best is maintaining its stable outlook on the surety segment for 2019. The key driver of the outlook is the expectation of ongoing growth in the economy and in construction spending — particularly for privately financed construction projects, which has led to growth in surety premiums.
• Title: AM Best is maintaining its stable outlook for 2019 and believes the segment is poised for another year of strong operating results, despite an expectation of a slowdown in economic growth and signs of a weakening housing market. AM Best believes title insurers should post another year of solid net underwriting and net operating profits.
• Reinsurance: In December, AM Best revised its outlook on the global nonlife reinsurance segment to stable from negative. The change reflects a pricing environment that has stabilized, but at current levels that are still below long-term adequacy.

Related: Emerging markets to drive global economic & insurance growth, Swiss Re says