P&C Industry Awash in Capital, According to KBRA 2018 Outlook Report

Kroll Bond Rating Agency (KBRA) has released its latest report, titled Insurance: U.S. Property/Casualty Industry 2018 Outlook. According to the report, the US property and casualty (P&C) industry has experienced favorable operating trends since 2012, with the following prevailing positive conditions: capital growth, no major catastrophes until third quarter 2017, abundant reinsurance capacity, and favorable, albeit slowing, reserve releases.

Additionally, reported capital for the sector will be at a record high at year-end. Opposing these positive trends have been generally flat-to-soft market conditions across both personal and commercial lines due to the highly competitive primary markets and the 2017 losses arising from the natural disasters in the United States and its territories.

Highlighting 2017 was the industry's resiliency—and risk transfer discipline—despite an atypical Atlantic hurricane season. The active 2017 Atlantic hurricane season brought with it significant insured losses (KBRA midpoint estimate of $115 billion in US catastrophe losses). Ultimately, these catastrophe losses will result in US commercial insurers suffering $30 to $45 billion in underwriting losses for the full year 2017, with a projected combined ratio in the range of 104–106 percent. Countering the underwriting headwinds, the P&C industry has benefited from its high-quality investment portfolios and strong total returns. KBRA believes the sector is financially sound, despite the magnitude of catastrophe losses incurred in 2017 and some below-average operating metrics.

The abundance of capital in the industry will continue to constrain rate increase pressures through 2018. KBRA believes that some testing of the market for rate increases will occur and some mild success may be achieved across the commercial lines segment. However, these price increases may be limited to loss-affected accounts and may not keep pace with ultimate loss costs.