A relatively quiet year for catastrophes helped the U.S. property/casualty industry achieved an underwriting profit for the first time in four years, according to A.M. Best.
The industry managed its way to a nearly 60 percent increase in net income to $63.2 billion, which helped drive an estimated record year-end surplus of $666.3 billion. The surplus level is “particularly noteworthy given the headwinds that are anticipated in 2014,” A.M. Best said.
In a special report, the ratings agency said underwriting results reached their best level since 2007 and the industry’s combined ratio for the year is expected to come in at 97.6.
The estimated underwriting profit of $8.5 billion for 2013 ranks as the third best in the past decade— next to $28.9 billion in 2006 and $23.0 billion in 2007. In 2012, the industry suffered a $12.5 billion underwriting loss.
The drop in catastrophe losses shaved 4.3 points off the industry’s expected combined ratio in 2013. While cat losses represented 7.5 points on the 2012 combined ratio, they dropped to 3.2 points in 2013. Unlike Superstorm Sandy in 2012, no major storm made landfall in the U.S. last year.
However, A.M. Best Co. said it is estimating a “more normal level of catastrophe losses” in the coming year.
Profitability for 2013 was further bolstered by considerable investment gains achieved in strengthened U.S. equity markets, the report said. Net income is projected to be $52.9 billion, a 7.9 percent increase over last year.
Additional highlights from last year’s performance include a 4.8 percent increase in net premiums written. Workers’ compensation was again the fastest-growing line with a 9.7 percent increase.
Looking ahead to 2014, A.M. Best said it expects premiums to continue growing through price increases, but the pace of these rate changes should slow and temper growth in premium.
Although core accident-year underwriting results should improve slightly on the rate level achieved in recent years, A.M. Best said it anticipates less favorable development of prior years’ loss reserves.
In addition, the report says the P/C industry will continue to be challenged by the relatively low investment yields that are expected to persist through 2014, and the slow recovery from the recession of 2007-2009.
A.M. Best has assigned stable outlooks to both personal lines and reinsurance. However, it has assigned a negative outlook to commercial lines, citing a highly competitive market, expected low investment yields and the potential for future adverse development of loss reserves.
Source: A.M. Best, Special Report: U.S. Property/Casualty – Review & Preview. P/C Segment’s Net Income Estimated to Be Up Nearly 60% in 2013