P/C Insurers Post Underwriting Profit, Record Surplus for 2014

The U.S. property/casualty insurance industry posted its second consecutive year of profitable underwriting results in 2014, according to A.M. Best.

Surplus for this sector increased by $21.9 billion and reached another record level at year-end 2014.

The Best’s Special Report, titled “Profits Continue for U.S. P/C Industry, Supporting Record Level of Policyholders’ Surplus Level,” also notes the net premiums written grew 4.4 percent to $501.2 billion in 2014 compared with the prior-year period. Last year marked the first time since 2009 that the pace of premium growth exceeded the prior year’s rate of growth.

Premium Growth

According to the report, net premium growth remains solid, but companies have reported more challenging conditions, particularly for new business. While premium growth slowed for most lines of business in 2014, inland marine, homeowners and commercial auto liability posted large increases.

After an unusually moderate level of catastrophe and non-cat weather-related claims in 2013, the industry returned to a more normal level of activity in 2014. Overall, cat losses added 4.0 points to the combined ratio in 2014.

Overall, however, core underwriting results remained favorable, deteriorating just 0.5 points to a combined ratio of 92.7 (without catastrophe and asbestos/environmental losses), which is partially attributable to an increase in non-catastrophe weather losses and an increase in fire losses in the first six months. The combined ratio with catastrophe and A&E losses came in at 97.4.

Low Interest Rates

The persistent low interest rate environment continues to put pressure on P/C insurers’ results, although net investment income increased in 2014. The increase relates to a dividend of approximately $7 billion in shares of non-financial affiliates paid to National Indemnity Co. (NICO) by GEICO. As a result, the industry’s net investment income grew 9.0 percent in 2014.

Companies that anticipate a spike in rates have been increasing liquidity, with lower investment income in the short term in exchange for lower duration that affords greater flexibility to reallocate the portfolio if rates move up quickly.

Topics Carriers Profit Loss Excess Surplus Underwriting Property Casualty