US Property/Casualty Insurers Facing Increasingly Complex Operating Environment: Guy Carpenter Report
Guy Carpenter & Company today released a study which found that, in a challenging operating environment, only 40 of the top 100 US property/casualty (P&C) insurers reported an underwriting profit over the last five accident years.
In the 2016 edition of its annual insurance risk benchmarks report, Balancing Risk and Growth in a Changing Market: Annual Statistical Review, Guy Carpenter found that for US P&C insurers, the greatest opportunity for profitable underwriting came in general liability lines, special property and products liability. By contrast, most carriers reported underwriting losses in personal and commercial auto in 2015, continuing the trend of adverse loss costs in auto lines.
“US insurers are facing an increasingly complex set of issues and significant disruption that requires them to innovate across their business to achieve profitable growth,” said Tim Gardner, CEO of Guy Carpenter’s US Operations. “With low investment returns and a lack of significant prior years reserve release in 2015, many insurers are looking to raise their premium to surplus leverage through either growth and/or capital return as a way of improving the return to stakeholders.”
The report, which is produced annually through Guy Carpenter’s ongoing Insurance Risk Benchmarks research project, focuses on risk and performance of US P&C insurers. This year’s release found that in 2015, the US P&C market departed from a six year period of robust surplus growth and modest loss reserve increases; US industry surplus remained flat last year while loss reserves grew at 3%, the fastest rate of growth since 2008 and an inflection point of adverse reserve development in the future calendar years.
The report also demonstrated that in 2014 and 2015, the gap in loss ratio performance between the best and worst underwriters widened. Historically, this has indicated a future further softening in market conditions as the gap between the best and worst market performers has tended to narrow as rates rise but widen as the market softens.
“It is important that insurers understand all the dynamics of the industry so that they can make the right strategic decisions for their organizations,” added Mr. Gardner. “Guy Carpenter’s Risk Benchmarks Research, the foundation for our BenchmaRQ® capital modeling service, enables us to assist insurers in decision making regarding risk and reward trade-off in pricing, reserving and catastrophe risks as they seek profitable growth.”