U.S. P/C Insurers Report Improved 2013 Performance: Fitch

March 20, 2014

U.S. property/casualty insurers’ operating performance improved in 2013, according to a new Fitch Ratings report. The improvement is largely a result of lower catastrophe-related losses and reductions in the core loss ratio from premium rate increases across many product segments.

The aggregate combined ratio of 48 publicly traded property/casualty (re)insurers improved by 5.2 percentage points to 93.3 percent. Only four companies of these 48 companies posted a 2013 combined ratio above 100 percent. The accident-year loss ratio (excluding catastrophe losses) improved by 1.3 points.

The group’s aggregate operating earnings increased by 30 percent versus 2012, while the 2013 operating return on equity improved to 8.8 percent from 7.3 percent in 2012. Only seven of the 48 companies in the group had a lower year-over year operating ROE.

Reinsurers posted the most improved underwriting performance, as well as the highest operating ROE of any industry subsectors. This result is not surprising given the low catastrophe activity in 2013.

Favorable prior period loss reserve development continues to boost underwriting performance, representing approximately 2.6 percent of earned premium in 2013 versus 2.9 percent in the prior year. A few individual insurers experienced unfavorable development in 2013. Fitch continues to believe that, after recognizing significant reserve redundancies over the last five years, the P/C industry loss reserve position is gravitating toward adequate levels.

Underwriting results and operating profitability for 2013 could represent peak results for the next few years. Pricing gains have slowed in primary lines and property reinsurance rates declined at the Jan. 1 renewal.

An anticipated return to normalized catastrophe activity and diminished reserve releases suggests that 2014 underwriting margins will more likely decline. Profitability will be further pressured by lower reinvestment rates of insurers’ maturing fixed-income investments.

Despite expected declines in near-term profitability, Fitch expects the P/C industry’s overall profile to remain broadly supportive of current ratings.

 

Source: Fitch Ratings, Inc.

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