U.S. property/casualty insurers’ operating performance improved significantly in the first half of 2012, according to Fitch Ratings.
The aggregate combined ratio of 47 publicly traded property/casualty (re)insurers improved to 96.2 percent through mid-year 2012 from 107.9 percent the prior year. This improvement was driven largely by sharp reductions in catastrophe-related losses, which declined to approximately 4 percent of the group’s earned premium from 16 percent in the first half of 2011. Core loss ratio improvements from recent premium rate increases and other underwriting actions was a more modest factor in the year-to-year change in underwriting results, Fitch said.
A large number of insurers and reinsurers returned to generating underwriting profits in the first half of 2012. Underwriting results improved for all but six companies in Fitch’s universe of (re)insurers in the first half of 2012.
Reinsurance specialists experienced the sharpest turnaround in performance, as there have been no large cat loss events in 2012 of the magnitude of 2011’s earthquakes and floods. Regional underwriters continue to post underwriting losses and weaker earnings due to several inland-storm related losses and inadequate pricing, according to Fitch.
The aggregate group reported an operating profit of $22.4 billion through mid-year 2012 versus a $10.2 billion operating gain in 2011’s first half. The operating return on average equity (ROAE), which excludes realized investment gains and losses from earnings, grew to 8.5 percent in the first half of 2012 from 4.1 percent in 2011. Seventeen companies reported operating ROAE above 10 percent thus far versus only three companies a year ago.
The group’s shareholders’ equity grew by 5 percent since year-end 2011, as earnings growth was coupled with higher unrealized gains. Share repurchase activity declined modestly relative to the first-half of 2011. Commercial line pricing improvements are likely to continue into early 2013, Fitch said.
In the longer term, competitive forces will promote a shift back toward stabilizing rates. A return to the broad hard market and mid-2000s’ operating performance is unlikely, Fitch said.