The U.S. property/casualty insurance industry showed continued favorable and improved operating performance in the first half of 2006 and, based on first-half results and barring any unusual events going forward, the industry is likely to meet or exceed Fitch Ratings’ estimates for underwriting performance and net income for the full-year.
‘Fitch recognizes that results in the second half of 2006 are unlikely to match the impressive year-to-date results, due to the seasonality of U.S. windstorm activity, most of which typically takes place in the third quarter,’ said James Auden, Senior Director, Fitch Ratings. ‘However, if insured catastrophe losses in 2006 return nearer to historic averages, the industry is poised to post strong underwriting profits for the full year.’
Specifically, the 2004 and 2005 hurricane seasons revealed the potential for greater frequency and higher severity of insured losses related to natural catastrophes. Fitch believes that this realization will continue to affect pricing and reinsurance availability in catastrophe exposed lines for the foreseeable future.
While mid-year statutory results are not fully available, Fitch also has compiled GAAP earnings release and 10-Q filing data from publicly traded property/casualty insurers in its debt rating universe, as well as several other insurance organizations of interest, to evaluate first-half 2006 performance. The overall results for this subject group show improvement over the comparable prior period in underwriting results and profitability.
Roughly two-thirds of the organizations in the Fitch group reported improved underwriting results during the first half of the year.
Fifty-one of the 53 insurers reported an underwriting profit for first-half 2006, compared with 48 of 53 in the year-ago period. Fitch said it believes these favorable results reflect a still adequate overall rate environment, an absence of unusually large catastrophe losses during both periods, and a trend of diminishing adverse loss reserve development, particularly for the 1997-2001 accident years.
Additionally, Fitch’s group of 53 property/casualty organizations had combined earned premium revenue of approximately $124 billion during the first half of 2006, an increase of 2.1% from the prior-year period. Earned premium revenue growth continues to gradually decline due to mostly flat or declining insurance rates in non-catastrophe-exposed business lines.
Underwriting results improved for this universe in aggregate in first-half 2006 relative to the year-ago period, as the average GAAP incurred loss ratio improved by 2.4 points to 58.9% and the average GAAP combined ratio fell 1.2 points to 87.9%.
Source: Fitch’s mid-year findings for the property/casualty insurers can be found in a special report, ‘2006 Mid-Year Results Review – U.S. Property/casualty Insurers,’ which is available now on ‘www.fitchratings.com’ under the Financial Insitutions tab, then Insurance, then Special Reports.
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