The U.S. property/casualty insurance industry managed to improve its underwriting results and attain higher net investment income to produce a 12.9 percent increase in pre-tax operating income in the first quarter of 2015 over the prior-year first quarter.
Higher realized capital gains and lower income taxes contributed to a $5.3 billion increase in the industry’s net income, to $18.2 billion for the quarter; however, surplus was flat, with the improvement in net income offset by unrealized capital losses and higher stockholder dividends, according to a report from A.M. Best titled, “Mixed Results for Property/Casualty Segment During the First Quarter of 2015.”
Growth in net premiums written (NPW) was driven by an increase in direct premiums and a decrease in ceded premiums, according to the report. Best said the decline in ceded premiums reflects, in part, the continuing effect of exceedingly soft conditions in the reinsurance market on primary carriers. Net premiums earned (NPE) also increased in the quarter, although at a lower rate than NPW.
Incurred losses, loss adjustment expenses and underwriting expenses all increased at a slower pace than NPE and NPW, driving the improvement in underwriting results for the quarter, which reflected in a combined ratio of 96.0. Catastrophe losses declined by six percent and favorable development of prior years’ loss reserves increased by 14 percent compared to the first quarter of 2014, which slowed growth in incurred losses.
Direct premiums written for the industry grew by 3.9 percent in the first quarter of 2015. The three largest lines—private passenger auto liability, auto physical damage and homeowners/farmowners multi-peril—all showed continued solid growth. The strongest growth rate was in the commercial auto liability line, which had its profitability challenged in 2013 and 2014 by increased claim severity.
As a result of improved underwriting and investment incomes, the industry’s pre-tax operating income increased by 12.9 percent over the first quarter of 2014 to $15.4 billion. The industry’s realized gains were up significantly over the prior year, rising by 56.8 percent to $4.8 billion, primarily related to sales of equities. Incurred taxes declined by 27.5 percent.
Best said that although the personal lines segment remains competitive, it continues to exhibit strengthening capitalization and generally positive operating performance. In addition, the industry continues to take actions to bolster and increase enterprise risk management practices and tighten underwriting standards, many of which have benefited the personal lines segment, according to the ratings agency, Best said.
The commercial lines segment recorded a 3.9 percent increase in direct premiums written through March 31, 2015, to approximately $66.3 billion, up from approximately $63.8 billion during the same period last year. Continuing increases in premium for workers’ compensation, other (general) liability, auto liability and inland marine contributed to this result, according to the report.
Source: A.M. Best
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