P&C Insurers See $1.5 Billion Net Underwriting Loss in 1H

A deteriorated combined ratio seen by insurers along with slow net written premium growth contributed to net underwriting losses of $1.5 billion in the first half of 2016. Insurers’ combined ratio deteriorated to 99.8% from 97.6% in the first-half of 2015, and net written premium growth slowed to 3.0% from 4.1% a year earlier, according to a report from ISO and the Property Casualty Insurers Association of America (PCI).

The Insurance Information Institute’s Steven N. Weisbart explained:

In general, premiums may grow for any or all of several reasons. First, there is growth in the number and/or value of insurable interests (such as property and liability risks). Second, there is an increase in the willingness of buyers who had some or no insurance to purchase or add to their insurance protection, net of those who reduce or drop it. And third, there is an increase in rates (that is, the price per unit of coverage).

Net investment income dropped to $22.1 billion in the first-half from $23.4 billion a year earlier, and realized capital gains decreased to $4.4 billion from $8.2 billion, resulting in $26.5 billion in net investment gains for the first-half, down $5.1 billion from a year earlier.

Direct insured property losses from catastrophes in the United States totaled $13.5 billion in the first-half, up from $10.7 billion a year earlier—above the $11.6 billion average for first-half direct catastrophe losses for the past 10 years, according to the report.

“The industry’s results continued to worsen in the first half of the year, as insurers reported a first-half net underwriting loss for the first time since 2012 and saw their combined ratio exceed 99%,” Beth Fitzgerald, president of ISO Solutions, said in a statement. “Catastrophe losses remained higher than in previous years. Texas was hit by a hailstorm that has been described as the costliest in the state’s history, and several states in the central United States experienced severe thunderstorms. With interest rates and investment yields remaining low, insurers must find ways to improve operational efficiency while still providing valuable coverage for their policyholders.”

In the second quarter of this year, insurers’ net income after taxes fell to $8.3 billion from $12.9 billion in the second-quarter of 2015, and their combined ratio worsened to 102.1% in second-quarter 2016 from 99.4% a year earlier.

Their annualized rate of return on average surplus dropped to 4.9% in second-quarter 2016 from 7.7% a year earlier. Net written premiums rose 2.9% in second-quarter 2016 compared with 4.5% in second-quarter 2015.

P&C Rates Drop 2% in May

The rate index for property and casualty risks was down 2% in May, the same as was seen in April, MarketScout reported. Accounts of more than $250,000 were priced more aggressively in May, at minus 3% compared to minus 2% in April.

“The market was stable in May with small movements in coverage, industry, and size classifications,” MarketScout CEO Richard Kerr said. “As we have seen in the past, larger premium accounts were priced more aggressively. Overall, the composite rate was down 2% in May, matching the rate for April.”

Acct size

According to the Insurance Information Institute:

A dominant factor in the P/C insurance cycle is intense competition within the industry. Premium rates drop as insurance companies compete vigorously to increase market share. As the market softens to the point that profits diminish or vanish completely, the capital needed to underwrite new business is depleted. In the up phase of the cycle, competition is less intense, underwriting standards become more stringent, the supply of insurance is limited due to the depletion of capital and, as a result, premiums rise. The prospect of higher profits draws more capital into the marketplace, leading to more competition and the inevitable down phase of the cycle.

By coverage classification, rates for property, business interruption, professional, auto, directors and officers, and surety all moderated 1% compared to April. Crime coverage increased from flat to plus 1%.

Coverage class

Industry classifications are examined to determine rate movement as measured when grouping accounts according to their SIC, or Standard Industrial Classification codes, MarketScout said. SIC codes are four-digit numerical codes assigned by the U.S. government to business establishments to identify their primary business, according to SICcode.com.

Industry class 3

The SIC codes are then incorporated into seven different segments. The only changes in rates in May versus April were in habitational, which moderated from minus 3% to minus 2%; and energy, which was priced slightly more aggressively at minus 3% compared to minus 2%. All other industry classifications were unchanged compared to April, MarketScout said.

Time for Post-Storm Claims Filing


Record-breaking Storm Jonas, which struck a large portion of the East Coast last weekend, was yet another reminder to have property insurance policies up to date and be familiar with claims procedures. To get the claims process moving, risk professionals whose business suffered damage should contact their insurer and broker as soon as possible.

According to the Insurance Information Institute, business owners need to:

▪ Fill out claims forms as soon as possible—including a “proof of loss” form, which must be completed within 60 days.

▪ Make a list of damaged property; the more detailed the better. Take photos or video to back up the claim.

▪ Be prepared to show the adjuster the damaged property as well as financial records or other documents.

▪ Get at least two bids for repairs or replacements.

▪ Keep copies of all correspondence regarding the claim and note the name, title and phone number of everyone you speak with. For more details, see Filing a Business Insurance Claim.

 What Is, and Is Not, Covered 

Business property owners also need to understand what is and is not covered by insurance, and the various coverage options available to protect their business. Property damage is typically covered under a business owners policy (BOP) or through a commercial multi-peril (CMP) policy.

Most commercial property policies provide either:

Replacement cost coverage – pays to rebuild or repair the property, based on current construction costs.

Actual cash value coverage – pays to rebuild or replace the property minus depreciation

Depreciation is a decrease in value due to wear and tear or age so with actual cash value coverage a business that is destroyed may not be in a position to completely rebuild. Business owners can also opt for a combination of both types of coverage.

Business income insurance, also known as business interruption, is typically included in a BOP or CMP and provides coverage for:

▪ Revenue lost due to the closure.

▪ Fixed expenses, such as rent and utility costs.

▪ Expenses of operating from a temporary location.

To receive appropriate reimbursement from business interruption coverage, there must be direct physical damage to the property resulting from an insured event. Also, there is generally a 24- to 48-hour waiting period before business income coverage kicks in.

Determining a business interruption loss involves establishing what the business would have earned had there been no loss. Insurers will consider past tax returns, profit and loss statements, projected sales and non-continuing expenses.

If basic business interruption insurance and property insurance coverage was expanded to include utility interruption, you may be covered if either electrical or water service was discontinued as a result of the storm.

Businesses that rent or lease a building can purchase tenant coverage, which insures your on-premises property, including machinery, furniture and merchandise. The building owner’s policy will not cover contents, however.

At Risk for Flood Damage?

Location is the most important factor for weighing your risk for flood damage. Is your business located in or near a flood zone? (Flood map search tools can be found online.) In what part of the building is your businesses equipment and inventory located? Anything housed on a lower floor, for instance, will be at greater risk.

Standard commercial insurance policies exclude flooding from melting snow or tidal surge. Commercial flood coverage is available from the National Flood Insurance Program (NFIP) and from a few private insurers. The NFIP provides up to $500,000 in building coverage and $500,000 for contents. Excess flood insurance is also available for businesses.

For more information on coverage options and disaster preparedness, see the Business Insurance section of the III website.

Related Links

▪ Facts and Statistics: Catastrophes

▪ Articles: When Disaster Strikes: Preparation, Response and RecoveryDoes My Business Need Flood Insurance?Does My Business Need Earthquake Insurance?Does My Business Need Terrorism Insurance?;


July 1 Renewals See Double-Digit Declines

Insurance buyers should expect improved rates and extended terms and conditions, as July 1 renewals saw price decreases across most geographies and lines of business, “many in the double-digit range,” according to Guy Carpenter.

“While the impact on property renewals, especially in the U.S., has been well documented, a wide variety of lines including marine, aviation, casualty, workers compensation and healthcare experienced improved terms and abundant capacity,” said Lara Mowery, managing director and head of Global Property Specialty for Guy Carpenter. “As a result, we have seen continued discussions around the expansion of terms and flexibility in adapting solutions to provide more client-specific tailored coverage that extend well beyond property.”

U.S. property renewal price decreases averaged in the mid-to-high teens. Changes in coverage, more diverse product offerings and an increase in multi-year options “enabled companies to better tailor their coverage to meet their risk management needs,” Guy Carpenter said.

In the U.S. casualty market, rates and terms continued to soften significantly on post-Jan. 1, 2014 quota share reinsurance program renewals. This trend was driven by reinsurers’ desire to diversify their writings as a result of an ongoing reduction in property catastrophe premiums.  In addition, loss ratios improved on the underlying business as a consequence of rate increases and reserve releases.

Guy Carpenter noted that growth in catastrophe bond issuance was strong through the first half of 2014, with a record-setting half-year issuance of $5.7 billion of 144A property catastrophe bonds. Outstanding total risk capital is now at an all-time high of $20.8 billion (excluding private placements). “In fact, even with no further activity for the remainder of the year, 2014 would still register as the fourth largest year in terms of new issuance,” the company said.

The Insurance Information Institute reported that profitability in the property/casualty insurance industry “retreated modestly” in the first quarter of 2014, as a result of higher underwriting losses. These were in part due to elevated catastrophe claims resulting from the polar vortex last year, and an abrupt drop in U.S. economic activity that caused lower premium growth and investment income. “Despite these headwinds, the industry registered a respectable return on average surplus of 8.4% in the quarter, compared to 9.6% in the first quarter of 2013 and 10.3% for all of 2013,” the III said.