North American property & casualty insurers were hit hard by catastrophe losses in the first 9 months of 2017, leading to a deterioration in operating results, a new Fitch Ratings special report explains.
Fitch Ratings compiled 9 month GAAP financial results for 52 P&C reinsurers that are publicly traded or report GAAP consolidated results.
The 9 month GAAP financial results for this group show operating return on equity (ROAE) declined to 4.3% compared to 7.1% in the first nine months of 2016. The Fitch report says only 7 out of the 52 P&C insurers reported an operating ROAE above 10% through the first three quarters of this year.
Driven by Hurricanes Harvey, Irma and Maria, reported catastrophe losses nearly tripled from this time last year to $27.9 billion, compared to $9.7 billion in 2016. 2017 could end up being a record year for insured catastrophe losses, as various industry estimates expect losses to reach $70-100 billion.
“The reinsurance and Florida specialist segments were especially hit hard by catastrophe losses, which represented nearly 25% and over 16% of earned premium through the first nine months of this year, respectively,” said Director Chris Grimes of Fitch Ratings. Fitch believes that 2017 may see a record for insured catastrophe losses for the U.S. P/C market.
Strong investment results offset the weaker underwriting earnings, the report explains. The aggregate group (excluding Berkshire Hathaway Inc.) reported realized gains of $2.1 billion in the first 9 months of 2017, up from a $400 million realized loss in 2016.
Boosting operating results across all sectors, net investment income increased to $36.5 billion, compared to $34.6 billion in the previous year.
Fitch maintains a Stable Rating Outlook for each of the sectors covered in this report (U.S. commercial, U.S. personal, and global reinsurance). Broad-based rating changes are unlikely in the next 12-24 months. Personal and commercial lines have stable sector outlooks, while the reinsurance sector's outlook is negative, as intense market competition and sluggish cedent demand have resulted in a soft reinsurance capacity.
Fitch's “North American Property & Casualty Insurers Nine Month 2017 Results” special report is available at www.fitchratings.com.