The third-quarter total expense ratio for the U.S. property/casualty insurance industry deteriorated to about 106.6% from 103.7% in the second quarter — the highest level since 2017, Standard & Poor’s Global Market Intelligence said in a report on Tuesday.
The deterioration in the industry’s key measure of profitability came as personal 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 strong growth in written and earned premiums and favorable calendar-year results in workers̵7; compensation helped mitigate the extent of the loss, S&P Global said in its analysis.
Catastrophe losses during the quarter hit various property lines, including private auto claims, while elevated costs to repair and replace vehicles and longer-than-usual time to close auto insurance claims continued to weigh on the industry, it said.
The private auto line generated a direct loss ratio of 84.7% during the quarter, including 80.7% in private auto liability and a staggering 90.4% in private auto claims, according to the report.
Loss ratios also increased during the quarter for homeowner, commercial multi-peril and fire and allied lines due to Ian as well as higher construction material and labor costs, based on S&P Global’s analysis.
At the other extreme, the calendar year direct loss rate for workers fell to a paltry 43.6% from 45.8% in the second quarter. Direct losses in compensation declined during a period of rapid premium growth as employer payrolls grew.
The data reinforces the urgency insurers have already shown for rate hikes on private auto deals, S&P Global said.
“It also speaks to the considerable volatility that catastrophe losses continue to inject into quarterly earnings even after accounting for significant hurricane reinsurance coverage,” it said.
Net insurance losses during the quarter often led to net losses or lower net income levels for individual property/casualty insurers, according to the report.
Downward pressure on fixed income and equity valuations also caused broad negative net changes in unrealized capital gains and losses for the third consecutive reporting period.
About 51% of the individual entities for which Sept. 30 data is available showed a decline in policyholder surpluses relative to June 30 levels, the report said.