US Property & Casualty Quarterly 1H19
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The US P&C industry delivered an ROE of 8.0% in 1H19, down modestly compared to the year-ago period, but slightly above the prior 10-year average for 1H. Looking forward from this relatively decent result, the medium-term outlook is murkier with potential downside risks: competition in personal auto is heating up further, and the commercial casualty segment is seeing mounting evidence of rising social inflation-driven loss costs.
Thus far in 1H19, direct premiums written advanced by a reasonably solid 4.5% yoy, albeit slower than last year, and we see some further deceleration ahead as personal auto and workers' comp softness outweighs an acceleration in casualty. Despite a historically roughly average cat loss burden, claims and loss adjustment expense growth in 1H19 was moderately faster than premium growth, resulting in a net underwriting gain of USD 5.6 bn, down nearly 8% yoy. Meanwhile, the contribution from the investment side diminished, as the current investment yield was down a tick to 3.2% annualized and realized capital gains fell by nearly 20% to USD 4.3 bn. Lower-for-longer interest rates put renewed pressure on the investment side ahead. All in, 1H19 aggregate net income was down 3.3% to USD 32 bn. By contrast, industry surplus climbed by 5.7% yoy to USD 819.6 billion, as sizable unrealized capital gains and lower statutory dividends offset lower net income support.
- The industry delivered an ROE of 8.0% in 1H19, but the medium-term outlook faces downside risks, including from escalating social inflation.
- Direct premiums written rose by 4.5% yoy in 1H19, a deceleration compared to the year-ago pace.
- Commercial lines pricing continues to improve, responding to rising loss costs.
- The industry earned an underwriting profit in 1H19, while the calendar year combined ratio deteriorated by 1.3 ticks yoy to 98.0%.
- Reserve releases are decelerating, though interim quarters may not be the best predictor for the full year.
- The investment side is under renewed pressure from lower-for-longer interest rates.
- We expect modestly better industry performance for full year 2019 compared to a year ago, predicated on a more average cat loss burden.