Chubb, Assurance, American Financial Tops in P/C Insurer Performance: Fitch Rating

October 14, 2016

Niche property/casualty insurer Assurant Inc., diversified multi-line writer The Chubb Corp. and specialty commercial lines insurer American Financial Group Inc. are ranked the top three performers over the most recent five-year period in a Fitch Rating report.

The statutory financial performance report is based on the five-year period 2011 through 2015, which Fitch says saw a wide variety of market conditions for U.S. P/C insurers. Material underwriting losses in 2011 were driven by soft market conditions and inordinately large catastrophe losses. These results promoted a broad hardening of market premium rates, leading to three consecutive years (2013 – 2015) of industry statutory underwriting profit, a feat unmatched since the early 1970s, according to Fitch.

“A return to more competitive pricing and a reduced contribution to earnings from investment income will create profit challenges for insurers going forward,” said Douglas Pawlowski, Fitch Ratings.

Fitch calculated its ranking based on a combination of five factors: underwriting margin, operating cash flow ratio, return on assets, return on surplus and internal capital formation.

Fitch analysts said reviewing longer-term results provides a better indication of overall performance than any single calendar year due to the inherent volatility of P/C insurance and vulnerability to large loss events in any single year.

Other findings from the Fitch report:

  • The five-year cumulative industry underwriting loss relative to earned premiums was negative 0.8% and remains strongly influenced by 2011’s weather-related losses. In fact, the industry’s underwriting margin in 2011 of negative 8.6% represented the industry’s worst results since 2002.
  • P/C industry operating cash flows amounted to 11.7% of premiums collected in 2015, down from 12.0% the prior year.
  • The P/C industry’s return on assets reached 3.2% in 2015, down modestly from 3.6% the prior year.
  • The P/C industry’s return on surplus was 8.5% in 2015, compared with a five-year average of 7.9%; however, this level of return remains well below the double-digit returns seen in hard market years 2004 – 2007.
  • The capital formation ratio for the P/C industry was 3.7% in 2015, down considerably from 8.7% in 2014 and 17.7% in 2013, mainly due to lower total investment returns.

Assurant sells insurance for renters and manufactured homes as well as flood and mortgage insurance. ACE acquired Chubb in January, 2016 to form the new Chubb, the largest publicly traded property/casualty insurer. Ohio-based American Financial Group primarily sells specialty commercial insurance products through Great American Insurance Group. It also has an annuity sales division.

“The top performers tend to have higher Insurer Financial Strength ratings while lower ranked performers consistently generated an underwriting loss and were ranked lower for capital formation,” added Pawlowski.

The report “Statutory Performance Rankings — U.S. Property/Casualty Insurers” is available at www.fitchratings.com.

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