The third-quarter combined ratio for the U.S. property/casualty insurance industry worsened to around 106.6% from 103.7% in the second quarter — its highest level since 2017, Standard & Poor’s Global Market Intelligence said in a report Tuesday.
The deterioration in the industry’s key measure of profitability came as personal lines insurers felt the brunt of losses from Hurricane Ian and inflationary pressures.
At $15 billion, the industry’s net underwriting loss also marked a 20-quarter high, based on S&P Global’s preliminary estimate.
However, continued sharp growth in written and earned premiums and favorable calendar-year results in workers compensation helped mitigate the extent of the loss, S&P Global said in its analysis.
Catastrophe losses in the quarter hit various property lines, including private auto physical damage coverages, while elevated costs to repair and replace vehicles and longer-than-usual times to close auto insurance claims continued to weigh on the industry, it said.
The private auto line generated a direct incurred loss ratio of 84.7% in the quarter, including 80.7% in private auto liability and a staggering 90.4% in private auto physical damage, according to the report.
Loss ratios also spiked in the quarter in homeowners, commercial multiperil and fire and allied lines due to Ian as well as higher building materials and labor costs, based on S&P Global’s analysis.
At the other extreme, the calendar-year direct incurred loss ratio in workers comp fell to a meager 43.6% from 45.8% in the second quarter. Direct incurred losses in comp declined during a period of rapid premium growth as employer payrolls swelled.
The data reinforces the urgency insurers have already shown around rate increases on private auto business, S&P Global said.
“It also speaks to the considerable volatility that catastrophe losses continue to inject into quarterly results even after accounting for significant reinsurance coverage for hurricanes,” it said.
Net underwriting losses in the quarter often led to net losses or lower levels of net income for individual property/casualty insurers, according to the report.
Downward pressure on valuations of fixed-income and equity securities also caused broad-based negative net changes in unrealized capital gains and losses for the third consecutive reporting period.
Some 51% of individual entities for which Sept. 30 data is available showed a decline in policyholder surplus relative to levels at June 30, the report said.