The past year was a tough one for US cat losses, especially wildfire and flood. Last week we explored just how bad it was, but also just how much opportunity does exist in the US protection gap. The secret to unlocking that opportunity, without undue overexposure, is crisp underwriting.
One of the main takeaways from AM Best’s US Property/Casualty 2018 Review and Preview (published Feb 6) illustrates clearly the importance of good underwriting. And here is why: “the industry 2017 combined ratio is estimated to deteriorate to 105.1 from 100.9 in the previous year.” Through another lens, the net underwriting loss for P/C insurers was $30b, mostly because of cat losses.
Many insurers might just shrug their shoulders at this, point to their ample reserves, and say that bad cat years can happen.
Other insurers, however, won’t just shrug their shoulders. They will realize that bad cat years are becoming more common, and that losing money on their underwriting is no longer a great idea with returns on capital so low.
And yet other insurers will already have worked on their underwriting, found solutions that can deliver property-specific risk assessments on wildfire and flood. Many of those insurers underwrote cat perils at a profit in 2017. How do we know? We work with them.