The U.S. property/casualty insurance industry remains well capitalized despite the operational challenges of 2017 and 2018, according to a report from A.M. Best Co. Inc.

The U.S. property/casualty industry “remains resilient following the operating challenges of 2017, when the segment reported the worst combined ratio in some time, owing to significantly elevated catastrophic losses, weak results in the personal and commercial auto lines, and soft market conditions,” according to Best’s Special Report: US Property/Casualty Benchmarking, released Monday. “In contrast, in the first 10 months of 2018, industry surplus has grown, premiums have increased at very robust rates, and catastrophic losses decreased measurably. Hurricanes Florence and Michael caused considerable damage in 2018, but the overall devastation was less extensive in comparison to Hurricanes Harvey, Irma, and Maria in 2017. November 2018, however, is once again putting the industry to the test as wildfires wreaked destruction in both northern and southern California.”

“The segment will continue to face hurdles, as competition in the U.S. remains acute for all of the P/C lines of business,” Best added.

As of Oct. 22, 81.1% of the property/casualty rated entities had excellent or superior issuer credit ratings, which is an independent opinion of an entity’s ability to meet its ongoing financial obligations, according to the report. Another 14.4% were rated good, while 4.5% were rated at the fair or below level.

“The risk-adjusted capitalization of most of the segment’s companies remains strong and balance sheets are robust,” Best stated in the report. “Operating performance, despite the catastrophic events of 2017 and 2018, remains adequate, especially when viewed over the longer term, and enterprise risk management capabilities most often stood up to the challenges of the operating conditions.”

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The property/casualty industry remains strongly capitalized, as about 35.4% of the rated entities were assessed as strongest, 47.9% were rated very strong, and 10.3% were rated strong, according to the report. Meanwhile, 4.6% of the entities were rated as adequate, 1.5% weak and 0.3% very weak in terms of balance sheet strength distribution.

From an enterprise risk management perspective, 92.6% of U.S. property/casualty insurers were assessed as having an appropriate ERM framework in place, while 61% were deemed marginal and 1.4% very strong, which Best attributed in large part to their operation in the highly regulated U.S. market in which regulators expect fundamental risk management capabilities.

In addition, some of the U.S. property/casualty insurers “are publicly traded companies with shareholder expectations to manage,” the report stated. “Strong ERM significantly mitigates surprises for their constituents.”

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