NU Online News Service, Feb. 6, 1:18 p.m. EST
Catastrophe losses in 2011 led to the U.S. property and casualty industry's largest underwriting loss since 2002, and while 2012 should see a "modest improvement" in pricing, a true hard market is likely "at least a year or two away," according to A.M. Best.
In a special report on theU.S.property and casualty industry's 2011 results, Best says $44.1 billion in catastrophe losses for the year helped drive net income down 49.2 percent to $21.9 billion. In 2010, industry net income was $43.1 billion and catastrophe losses totaled $19.6 billion.
Underwriting losses are expected to total approximately $33.9 billion for 2011, the second consecutive year of underwriting losses and the third-larges annual underwriting loss ever behind 2001 ($56.4 billion) and 2002 ($34.3 billion).
The industry's combined ratio climbed 6.5 points to 107.5 for 2011. Catastrophe-related losses accounted for 10.1 points, compared to 4.6 points in 2010. Reserve releases shaved 2.7 points off of the 2011 combined ratio, down from three points from reserve releases in 2010.
Best says it expects the impact of reserve releases to decline going forward. "While there are select lines where reserving strength remains, A.M. Best continues to believe the overall industry's previous reserve cushion is largely exhausted because of sizable reserve releases over the past six calendar years."
The ratings agency adds, "With overall industry reserve redundancies expected to continue through 2012, albeit to a lesser extent, the overall reserve deficiency will continue to increase, and core, undiscounted reserves will remain inadequate."
Despite the challenges in 2011, the industry's policyholders' surplus declined only 1.4 percent to $562.7 billion, Best says. In 2010, policyholders' surplus stood at a record $570.4 billion.
Additionally, the industry saw net premiums written increase 3.5 percent to $442 billion.
Best says, "While the overall U.S. P&C industry demonstrated its resiliency yet again in 2011 and remains well capitalized, the year's results—and expectations for 2012—will vary by segment."
Best says pricing continues to improve in personal lines and in catastrophe-exposed property accounts, but some commercial lines are still "fundamentally underpriced, and the segment continues to be negatively impacted by weak macroeconomic conditions and decreasing reserve adequacy levels."
The outlook for commercial lines remains negative as a result, Best says, while personal lines andU.S.reinsurance are stable.
Looking ahead to 2012, Best says it believes a traditional hard market is still a year or two away, although, industry operating performance is expected to improve in 2012. Best says insurers "still face a challenging environment, with relatively weak underwriting results and lackluster investment returns expected to influence operating results over the next year."
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