The US property and casualty sector slumped in the first nine months of the year to deliver a $20bn underwriting loss after a trio of hurricanes pushed the industry combined ratio to the highest level in five years, according to rating agency AM Best.
Cat losses had already reached $38.4bn before the beginning of the fourth quarter, which brought Hurricane Nate in the Gulf of Mexico and wildfires that ravaged California.
The claims bill is almost double the figure from last year, climbing 89 percent, and higher than AM Best’s $36.1bn estimate for full year 2012, which includes Hurricane Sandy.
As a result, AM Best estimates that catastrophes added 9.8 points to the sector-wide combined ratio, a significant increase on the 5.4 point estimate the rating agency forecast last year.
The events pushed the industry’s combined ratio to 104 percent in the first nine months of the year, up 4.3 points from the same period in 2016.
Stripping out reserve releases for the latest period exposes a combined ratio that is even further in the red at 105.7 percent.
The underwriting loss calculated by AM best for the year so far is almost 10 times the $2.3bn deficit the rating agency reported this time last year.
It said that an 11.3 percent uptick in incurred losses for the period more than offset a 4 percent increase in net premiums earned.
“The industry benefited from a $2.5 billion increase in net investment income earned, which was negated by a $4.1 billion loss in other income, reflecting the impacts of a retroactive reinsurance contract entered into in February 2017 by AIG and National Indemnity,” AM Best said, referring to the Berkshire Hathaway subsidiary.
The rating agency said – for the first nine months of 2017 – the deal helped drive down the industry’s total pretax operating income by 65 percent to $10.8bn.
But, despite a $7.9bn decline in net income, industry surplus grew to $699.8bn during the period driven by $11.2bn in unrealized gains, mostly from Berkshire Hathaway-owned firms