P/C Direct Premium Up Nearly 4.5% for All-Time Industry High

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Direct premium growth for property/casualty insurance companies continues to increase. At year-end 2012, more than $523 billion of direct premium written (DPW) was reported, an all-time high for the industry. For 2012, total DPW for all P/C insurers aggregately increased 4.4 percent over 2011. This increase in DPW represents nearly $22.3 billion in premium growth, of which slightly less than half is attributed to the Top 25 P/C insurers in terms of growth.

Overall, P/C insurance companies have continued to serve their clients by responding to catastrophic events, difficult economic conditions and regulatory uncertainty. For the 12 months ending Dec. 31, 2012, P/C companies comprising the Top 25 insurers, in terms of DPW, leveraged their experience and increased their DPW 9.6 percent over 2011.

The Top 25 accounted for nearly 45 percent of the growth for the P/C insurance industry’s DPW. In contrast, the remainder of the industry reported an increase in DPW of only 3.1 percent, or $12.3 billion, year-over-year.

P/C companies have aggregately maintained a sufficient level of policyholders’ surplus (PHS) while increasing DPW. This is demonstrated by the nearly $50 billion P/C insurers added to PHS in 2012. One measure that implies P/C companies are conservatively leveraged is the DPW to PHS ratio. An insurer’s DPW to PHS ratio is indicative of its leverage on a direct basis, without consideration for the effect of reinsurance. Since 2010, this ratio has remained stable at approximately 70 percent.

Although the market continues to exhibit signs of firming and DPW continues to increase, P/C insurers should not expect a traditional hard market in the near future. More importantly, it is possible that the double-digit premium growth experienced in the historical hard market cycles may have created unrealistic premium growth expectations for this current recovery.

If the industry continues to hold to its 10-year historical pattern, growth this year would again lead to the highest level of year-end DPW ever reported by the P/C industry.

Topics Trends Carriers Pricing Trends Market Property Casualty

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