Auto losses, AIG's reinsurance deal with Berkshire Hathaway, and high competition in non-auto business lines are the stories to watch in 2017, according to S&P Global Market Intelligence.
Included in S&P's third annual U.S. Property & Casualty Insurance Market Report are S&P's combined ratio and direct premiums written growth projections for certain lines for the remainder of the year.
More claims lead to rate increases in auto
For the second year in a row, Personal and Commercial Auto losses have soared, driving losses in the overall U.S. Property & Casualty insurance market. According to the report, auto losses rose 13% in 2016 due to a rise in frequency and severity in claims, leading carriers to broadly pursue rate increases.
Private auto net incurred losses will increase by nearly 7% in 2017, rising to a new record of approximately $154 billion, says S&P. The rate increases are expected to lead to higher premiums, but will also lead to gradual improvement in profitability in the auto insurance industry.
The report also notes that consumers should expect to pay higher auto insurance premiums as a result of historically high loss ratios in 2016, as well as an increase of time spent on the road by U.S. motorists as a whole.
AIG Berkshire deal sets stage
Also highlighted in the S&P report is AIG's reinsurance transaction with Berkshire Hathaway. In January, AIG agreed to pay $9.8 billion to Berkshire Hathaway to take on long-term risks from commercial policies written in prior years.
According to S&P, the deal set the stage for improved and less volatile financial results for AIG. At the industry level, normalized results for AIG should help offset expected erosion in underwriting profitability for several commercial lines of business.
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Competitive landscape
The S&P report predicts competition will remain intense in some non-auto business lines given ample reinsurance capacity, high levels of industry capitalization and a macroeconomic environment characterized by slow growth in gross domestic product. Though additional exposure units will help offset downward pressure on premiums, the industry will be challenged to achieve profitable top-line growth, says S&P.
Trends in litigation will increasingly weigh on underwriting results in several business lines including professional lines and the Florida homeowners' business. They also could lead to greater demand for coverage, particularly for new and emerging risks.
2017 P&C projections
S&P Global Market Intelligence projects an industrywide combined ratio of 100.7% across business lines in 2017, a slight increase from 2016. Projected growth in direct premiums of 4.3% would represent an increase from 2016 levels, reflecting higher auto rates.
See select 2017 P&C projections by line of business in the graph below.
(Click image to enlarge.)
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