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2017 results: Looking past the cats

Catastrophe losses inevitably dominated the headlines in 2017. This is just the nature of the specialty P&C (re)insurance universe. Yet, the underlying results also continue to paint a bleak picture.

Following a long softening cycle, underlying results are showing significant signs of strain. The expense ratio speaks to cost-control challenges, driven by efforts by brokers to squeeze more of the economics out of the business in a highly competitive market. In particular, this can be seen at Lloyd's, where the acquisition cost ratio has grown a full percentage point since 2015.

Similarly, the underlying loss ratio continued to worsen across most of the companies in the group, in some instances significantly so. For example, every Bermuda company we follow reported a higher underlying loss ratio in 2017 in P&C. Combined with declining prior-year releases, it is clear that underwriting margins would have been under significant strain in 2017 even with "normal" cats.

As our reporting shows, the pricing response to 2017 losses has so far been muted. However, these results clearly show this is not simply about a cat-driven pricing response. There are broad and systemic profitability challenges facing the market. Whether through pricing, corporate actions and M&A, or radical expense control, one thing is clear: doing nothing is not an option.

The story of 2017 may have been driven by the hurricane season. But 2018 is likely to prove a highly interesting and active year, regardless of whether the wind blows or not.


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