Tax reform's impact on US property & casualty insurance industry extends beyond lower tax rate
Tax reform's impact on US property & casualty insurance industry extends beyond lower tax rate US property and casualty industry on a path for substantial improvement in underwriting results in 2018, according to S&P Global Market Intelligence report |
[21-June-2018] |
NEW YORK, June 21, 2018 /PRNewswire/ -- Federal tax reform has emerged as a key variable in revenue growth and profitability, accordingly to S&P Global Market Intelligence's 2018 US Property & Casualty Insurance Market Report. The report identifies various factors including premium rate increases and reduced catastrophe losses that are expected to lead the industry back to underwriting profitability for the first time since 2015. The combination of expected underwriting improvements and a more favorable interest rate environment is projected to lead the industry to produce a pretax return on statutory equity of 8.3% in 2018, up from a six-year low of less than 5.8% in 2017.
Tim Zawacki, Senior Insurance Research Analyst at S&P Global Market Intelligence said, "The industry is poised to produce significantly stronger underwriting results in 2018 after a record year for natural catastrophes made 2017 especially challenging. However, the projected improvement in underwriting performance is not limited to an easy comparison. We expect that the industry will build upon the progress it has made in the personal auto business and finally see a turn in commercial auto results after several difficult years. Beyond underwriting income, we expect a lower corporate tax rate and rising interest rates will also prove beneficial to industry profits." Elevated catastrophe losses led by the first major hurricane to strike Florida in 12 years, Hurricane Irma, triggered nearly 1 million claims. Coupled with hurricanes Harvey and Maria, the industry's combined ratio spiked to 103.5% in 2017 from 100.5% in 2016. It marked the highest such result in six years. The industry's effective tax rate will decline in 2018 and subsequent years as a result of the reduction in the corporate tax rate to 21% from 35%, which took effect in 2017. One component of tax reform produced a readily quantifiable impact to first-quarter 2018 results: the Base Erosion and Anti-Abuse tax (BEAT). The tax targets base erosion payments by U.S. companies to related foreign parties, and it may impact reinsurance payments to foreign entities or individuals. In response, several U.S. companies with foreign parents acted to terminate reinsurance agreements, which contributed to growth in their net premiums of 14.4% in the first quarter, the highest rate of growth in any quarter in more than 15 years. Additional findings from the U.S. Property & Casualty Insurance Market Report include:
For additional findings and a high level summary of the report, please click here. About S&P Global Market Intelligence S&P Global Market Intelligence, a division of S&P Global (NYSE: SPGI), provides essential intelligence for individuals, companies and governments to make decisions with confidence. For more information, visit www.spglobal.com.
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Company Codes: NYSE:SPGI |
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