Capital Growth Outpaced P/C Premiums In 2012: Moody’s

By | March 13, 2013

Moody’s Investor’s Service reported that the property/casualty insurance industry’s capital growth outpaced premium growth last year, and that earnings for the year jumped nearly 50 percent over 2011.

“Capital adequacy remains solid,” the firm said in a report said, noting that shareholders’ equity grew 7 percent for the P/C insurers rated by Moody’s, while net written premiums grew 5 percent overall for the group.

The growth in capital was fueled by profits and higher unrealized investment gains, the report said, noting that the increases was also tempered by share repurchases, and somewhat by the payment of common stock dividends.

Premiums rose through a combination of exposure growth and rate increases—with many companies reporting rate hikes across all business lines, Moody’s reported.

The 5 percent jump in premiums followed a 6 percent increase in 2011, the report said, adding that Moody’s expects improved accident-year loss ratios in 2013 as rate increases find their way into earned premiums and loss cost trends remain benign.

Shareholders’ equity growth has generally been slower in recent quarters, Moody’s said, attributing the slowdown to active share buyback programs and shareholder dividends. The report also said that companies did scale back share repurchases in the fourth quarter of 2012 as a result of Superstorm Sandy.

In spite of Sandy, Moody’s said most rated insurers reported a profit in the fourth quarter, and for the entire year, net income grew 48 percent for the group—with a lower level of catastrophe losses and higher earned premiums driving the results.

While net investment income for the group also fueled growth in net income for the group, with investment income rising 4 percent for the group overall, Moody’s noted that nearly half the rated insurers reported declining investment income in 2012. According to the report, a number of insurers have adopted a defensive strategy against possibility of rising interest rates in the future by slightly lowering the durations of fixed-income portfolios.

On the other hand, the report said there are some companies that have reallocated portions of U.S. Treasury and municipal bond portfolios to corporate debt and even lower-rated bonds in pursuit of higher yields.

In addition to summarizing the changes in net written premiums, shareholders’ equity, net income, investment income and combined ratios for the group of 26 rated companies overall, the report sets forth the results for each of the companies individually.

As for combined ratios, Moody’s summarizes those for 2012 and 2011 with catastrophe losses excluding, noting that the ex-cat ratio for the group was breakeven–100–for 2012, compared to 102 for 2011.

Moody’s also noted that prior-year loss reserve releases continued to support earnings for the group, noting that aggregate releases were actually slightly higher in 2012 than in 2011. Drilling down further, however, the report notes that two insurers—Allstate and Travelers—drove the overall increase. For most other companies, reserve releases were lower in 2012, consistent with the rating agency’s expectation that redundancies are “gradually tapering off.”

“Moody’s expects year-end 2012 standard commercial lines reserves to continue to be moderately redundant overall, with reserve releases continuing to decline in 2013,” the report said.

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