If property and casualty results maintain their momentum through the 2013 fourth quarter, the industry could see its first yearly underwriting profit since 2009, A.M. Best says.
As it is, A.M. Best notes that the industry has been profitable through the first three quarters of 2013—the first time it has done so for this time period since 2007.
The ratings agency credits the industry’s results to lower catastrophe and non-catastrophic weather losses and higher premium volumes. Net premiums written were up 4.5% compared to the first nine months of 2012, up slightly from the 4.4% growth rate though the first half of the year.
A.M. Best’s nine-month analysis comes shortly after ISO and the Property Casualty Insurers Association of America released their joint analysis, which prompted Insurance Information Institute President Robert Hartwig to remark that the industry appears to be on a “firm trajectory” for what will “assuredly be its best year in the post-crisis era.”
According to the A.M. Best analysis, the industry posted an underwriting profit through the first nine months of $7.5 billion, a turnaround from the $4.7 billion underwriting loss for the same period in 2012. That underwriting profit more than offset a 2.8% decline in net investment income, and helped fuel a 35.3% increase in pre-tax operating income for the period—to $43.5 billion.
The P&C industry’s 54.9% increase in net income for the first nine months of 2013—to $47.7 billion—was also aided by higher realized capital gains of $12.8 billion, compared to $5.1 billion for the first nine months of 2012.
The industry’s combined ratio for the period was 96.5, down from 100.2 in the first nine months of 2012.
While the news was largely positive for the industry, there were some signs of caution in the report. Commercial lines underwriting results in the third quarter—while still positive at $2.6 billion and improved compared to the 2012 third quarter—deteriorated somewhat compared to earlier in the year. The segment’s third-quarter combined ratio of 99.9 was also up some compared to the prior two quarters.
A.M. Best also reiterated concerns with the industry’s loss-reserve position. While the industry reported $13.1 billion in favorable development through the first nine months of 2013, including $3 billion in favorable reserve release for the commercial segment (an increase from $1.9 billion for the same period in 2012), A.M. Best says it “remains concerned with the industry’s loss-reserve position given the extended soft-market cycle, which eroded pricing adequacy during those years while reducing the available loss-reserve cushion, particularly the reserves of the commercial-lines segment.”
The ratings agency notes that several insurance groups announced in the fourth quarter they would be taking reserve charges to strengthen prior accident years’ loss reserves.
“In light of the level of favorable development recognized on recent accident years and the concern with adequacy of those rates due to challenging market conditions that predominated in those years, the cushion of available reserve redundancies has declined and may not provide the same support to future calendar-year results,” says A.M. Best.
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