Best’s Special Report: Catastrophes, Tax-Reform Write-Downs Carve Into U.S. Property/Casualty Insurers’ Net Income

OLDWICK, N.J.--(BUSINESS WIRE)-- A confluence of catastrophe losses and tax reform-related write-downs led to U.S. publicly traded property/casualty (P/C) companies posting a 51.6% year-over-year drop in net income to $7.8 billion in 2017.

The Best’s Special Report, titled, “Quick Look: U.S. P/C GAAP Earnings Review—Year-End 2017,” states that the deterioration in financial performance largely was caused by higher-than-expected claims from hurricanes and wildfires, and $10.3 billion in deferred tax asset (DTA) write-downs stemming from the Tax Cuts and Jobs Act (TCJA). Although expenses continued to outpace revenue, the gap tightened because of a $5.2 billion year-over-year increase in premium revenue, driven largely by rate increases in the personal and commercial auto segments, as well as by a $2.3 billion increase in realized gains from the strong equity market. Operating income was flat year-over-year, but the cumulative change in deferred tax expenses or benefits recognized in income from continuing operations resulted in the drop in net income.

Overall, premium revenue grew 2.3%, constituting the main contributor to the group’s $8.9 billion increase in revenue. Net investment income grew by 4.5%, but overall yield remains historically low. The $1.8 billion increase in other revenue was driven by $1.1 billion in realized gains, as companies cashed in on the rise in equity prices.

The TCJA-related write-downs diminished shareholders’ surplus by $10.2 billion, or 2.8% of 2016 surplus. However, TCJA was not negative for all companies, since some believe the new law makes them more competitive as buyers in terms of mergers and acquisitions.

To access a full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=272642.

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Source: A.M. Best