A.M. Best has published a report on the performance of insurers in 2018. It is titled, Hurricanes, Wildfires Weigh Down U.S. Property/Casualty Performance for Second-Straight Year, and concludes the insurer overall financial performance in 2018 fell by a slight margin.
Above-average catastrophe losses are the cause of the Best conclusion. The ratings service also says the losses countered the positives of the tax reforms passed in 2017.
Best said the catastrophes were of historic proportion and pointed to California’s devastating wildfires and a bunch of hurricanes that caused equally devastating losses. The report also says expenses outdistanced revenues. A 3.2% drop in net investment income topped the 3.1% increase in premium revenue.
Speaking of growth in premium revenue, A.M. Best’s report says insurers saw double-digit increases in other income but it was not enough to increase the total operating income. So overall there was a 6.7% decrease in operating income. It was mostly due to a downturn in the equity market toward the end of 2018.
Best’s report did have good things to say about the tax reforms. It said insurers were able to defer $17.8 billion in asset write-downs. Overall there was a 70% decline in overall income taxes. That turned into a more than double net income of $17.1 billion.
The negative is in 2019, those cuts will be passed down to shareholders via stock repurchases and dividends.
Pre-tax returns on equity — on average — fell for the fourth straight year to 7.0%. Increased competition has impacted premium growth. Then there’s higher claims costs on multiple lines of business.
Lastly, A.M. Best saysmergers and acquisitions played a role in the slight drop in 2018’s financial results. Due to large-scale acquisitions, stockholder equity fell 4%.
Source link: Insurance Journal