The U.S. property/casualty industry saw its net income grow in 2018 by nearly 70 percent from the previous year, thanks to lower catastrophe losses, favorable development of prior years’ loss reserves and higher net investment income, according to a new A.M. Best special report.

Net income reached $59.2 billion in 2018, A.M. Best noted, based on its review of insurers’ year-end statutory filings.

Net premiums written (NPW) also rose significantly due partially to the 2017 Tax Cut and Jobs Act, according to the report, as changes in accounting rules for internal transactions with foreign affiliates led to revisions and terminations of reinsurance agreements with off-shore affiliates. A.M. Best estimates that about half of the 10.8 percent increase in net premiums written to $617.4 billion in 2018 resulted from these changes, with rate and exposure changes also contributing to NPW growth.

The turnaround in underwriting performance was a key factor in the industry’s improved operating performance, but higher net investment income (NII) also contributed to the 69 percent increase in net income for the industry. However, unrealized investment losses, driven primarily by equity market declines during the fourth quarter, resulted in a slight decline in policyholders’ surplus for the year.

Incurred losses grew 4.4 percent reflecting significantly lower catastrophe losses that were more than offset by higher retained losses because of reinsurance changes. The lower catastrophe levels also drove a slight decline in loss-adjustment expenses, which decreased by 0.5 percent in 2018. Underwriting expenses for 2018 increased 10.7 percent, outweighing a 9.8% increase in net premiums earned (NPE), resulting in an underwriting loss of $2.9 billion. Despite the loss, it marked a significant improvement from the $25.3 billion underwriting loss in 2017, a year greatly affected by natural disasters. The statutory combined ratio dropped to 99.6 from 104.6 in the previous year despite the underwriting loss, reflecting the extent to which net premiums written exceeded net premiums earned in the year.

The P/C industry’s net investment income increased by 14% in 2018; however, unrealized investment losses of $43.8 billion, driven primarily by equity market declines during the fourth quarter, resulted in a slight decline in policyholders’ surplus for the year.

The full A.M. Best special report is: “Generally Favorable 2018 Statutory Results for Property/Casualty Insurers.”

Source: A.M. Best

*A version of this story ran previously in our sister publication Insurance Journal.