How P/C Insurers Fared in 2015

May 9, 2016

The U.S. property/casualty (P/C) industry marked a third consecutive year of underwriting profitability, with $6.2 billion in underwriting income in 2015. However, the lower level of underwriting income and an 11.2 percent decline in net investment income drove pre-tax operating and net income down from their 2014 levels, according to an A.M. Best special report.

The combination of lower net income and a negative change in the industry’s accumulated unrealized gain position resulted in a $1.5 billion reduction in policyholders’ surplus, to $688.6 billion at year-end 2015, a decline of 0.2 percent, says the Best special report, titled, “U.S. P/C Industry Marks Third Consecutive Underwriting Gain, But Surplus Declines on Investment Results.” After-tax return on equity (ROE) also declined, to 8.1 percent from 9.2 percent in 2014, driven by the lower level of net income.

Net premiums written (NPW) continued growing in 2015, up 3.4 percent to $519.0 billion from the prior year. However, this represented a second year of declining premium growth since the peak of 4.7 percent NPW growth in 2013. Modest economic growth, along with rate and exposure increases continue to drive up premium, even as market pressure builds, particularly in commercial lines.

Catastrophe activity in the United States remained relatively benign in 2015, with catastrophe losses adding just 3.5 points to the industry combined ratio, down from 4.0 points in 2014. Despite this reduction in catastrophe losses, the P/C industry’s accident year combined ratio increased by 0.5 points, and the benefit from favorable development of prior accident year loss reserves declined. The combination of these factors deteriorated the reported 2015 combined ratio to 98.3 from 97.4 in
the prior year.

The personal lines segment saw a substantial adverse impact on surplus growth from a negative change in its unrealized gain position, in line with the overall industry results. Underwriting income in 2015 declined to a loss of $0.3 billion from an underwriting profit of $2.2 billion in the previous year. Reinsurance transactions that took place in 2014 caused an unusually high level of favorable development of loss reserves in that year; a return to a more normal, lower level of favorable reserve actions in 2015 reduced the benefit and contributed to the loss.

The commercial lines segment produced a slightly higher level of pre-tax operating income in 2015, driven by increases in net investment income and other income. While underwriting income declined compared with 2014, the segment’s underwriting performance remained favorable. Unlike the personal lines segment, the underwriting results for the commercial lines segment were adversely impacted by expenses, with both loss adjustment and underwriting expenses increasing relative to premium. Incurred losses declined on both a relative and absolute basis, driving the loss ratio down to 53.0 from 54.2.

Source: A.M. Best

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