Commercial Diversified Insurers

Thirteen insurers make up Fitch's diversified-commercial universe, and 12 of these companies reported improved operating profitability in 2013 compared to 2012. Fitch says White Mountains Insurance Group was the exception due to tax effects.

Net earned premium grew by 3.2% to $184.4 billion, and Fitch says growth for the group was slowed by modest declines in earned premiums for two of the largest companies in the segment: AIG and The Hartford.

The leaders in the group with respect to net earned premium were AIG ($34 billion), Liberty Mutual Holding Company ($32.6 billion) and Berkshire Hathaway ($30.4 billion).

Underwriting results improved for all 13 companies, and only one, AIG, failed to produce an underwriting profit in 2013. In 2012, four companies in this group reported an underwriting loss.

The combined ratio for the diversified-commercial insurers was 94.4, down from 100.2 in 2012. Excluding reserve development, the combined ratio was 96.7 in 2013 compared to 102.5 in 2012.

Net income for the group was $43.3 billion, compared to $29 billion in 2012. Berkshire Hathaway led the group in net income at $19.5 billion, followed by American International Group at $9.1 billion and Ace Limited at $3.8 billion.

Regional Insurers

Fitch says regional insurers continue to make up the weakest-performing group in its universe from an underwriting standpoint, but all six insurers in the group showed improved underwriting results in 2013, and all but one (State Auto Financial Corp.) reported an underwriting profit for the year.

Net earned premium for the group was $16.6 billion, up 7.9% compared to 2012. Erie Indemnity Company led the group with $4.8 billion in net earned premium, followed by The Hanover Insurance Group ($4.5 billion) and Cincinnati Financial Corp. ($3.7 billion).

The combined ratio for the group improved by six points to 97 in 2013 compared to the year before. Excluding reserve development, the combined ratio was 99.1 compared to 107.2 in 2012.

Fitch says the group benefitted from “modest pricing improvement in smaller commercial-market segments as well as a decline in tornado and inland storm-related losses relative to recent years.

Of the three commercial-insurance subsectors (diversified, regional and specialty), Fitch says regionals reported the largest year-over-year decline in loss-ratio impact from catastrophes, with cats adding just 3.8 points to the combined ratio compared to 9.6 points in 2012.

All six regionals in Fitch's universe reported an operating profit in 2013. Combined, the group reported operating earnings of $1.1 billion.

The combined net income for the six regionals was $1.2 billion, up from $726 million a year ago. Cincinnati Financial led the way with net income of $517 million, followed by The Hanover Insurance Group with $251 million and Erie with $163 million.

Specialty Commercial Insurers

Specialty insurers had been notably outperforming regional- and diversified-commercial insurers, but in 2013, performance among the three groups was more comparable, says Fitch.

Still, specialty-insurer results “were solid and showed modest improvement versus the prior year,” the ratings agency says.

The 13 companies in Fitch's universe reported a combined ratio of 93 for the year, down from 94.5 in 2012. Excluding reserve development, the combined ratio was 96.1 compared to 98.6 for the prior year. Fitch says a “modestly lower benefit from loss-reserve releases was more than offset by lower catastrophe losses.”

Employers Holding, Inc. and Meadowbrook were the only two companies in the group to report a combined ratio over 100.

Net earned premium for the group was $25.7 billion, up by 15.9%. W.R. Berkley led the group ($5.2 billion), followed by Markel Corp. ($3.23 billion) and American Financila Group ($3.2 billion).

Fitch notes that, despite favorable underwriting results, only 5 of the 13 companies reported operating return-on-equity of 10% or better in 2013, unchanged from 2012.

Revenue was strong for the group in 2013, with net premiums earned increasing by 15.9% compared to 2012. Part of that growth was due to Markel's acquisition of Alterra as well as “several acquisitions made by Amtrust.” Excluding both Markel and Amtrust, Fitch says net earned premiums for the group grew by 8.6%

Net income for the group was $3.5 billion, up from $2.8 billion the year before, led by W. R. Berkley ($500 million), Assurant ($489 million) and American Financial Group ($471 million).

Personal Lines

Half of personal-lines writers in Fitch's universe reported unfavorable reserve development in 2013, says Fitch. Of the six insurers in this group, Progressive, Mercury Casualty Group and Infinity Property reported “modest unfavorable development,” says Fitch, while Allstate, the largest personal lines insurer in Fitch's universe, reported “significantly less benefit” from reserve releases compared to 2012.

Still, Fitch says all six insurers reported an underwriting profit for 2013.

The combined ratio for the group was 93.2, down from 96.5 in 2012. Excluding reserve development, the combined ratio was 93.5, compared to 97.8 in 2012.

“Notably, the personal-lines specialists all reported improvement in underwriting results year-to-year due to modest pricing improvement and stabilizing loss severity…,” Fitch says.

Catastrophes added 3 points to the combined ratio, compared to 5.8 points in 2012.

Net earned premium for the group was $50.8 billion, up by 4.4%, led by Allstate ($27.6 billion), Progressive ($17.1 billion) and Mercury ($2.7 billion).

The group's net income was $3.9 billion, up from $3.6 billion the year before, led by Allstate ($2.2 billion), Progressive ($1.2 billion) and Kemper Corp. ($218 million).

Reinsurers

The reinsurance group demonstrated “improved underwriting discipline,” says Fitch, resulting in sustained favorable run-rate underwriting results. Diminished cat losses helped drive a 2013 combined ratio of 82.7 compared to 90.4 in 2012.

Excluding reserve development, the combined ratio was 91.8 compared to 99.5.

Net earned premium for Fitch's universe of reinsurers was $23.3 billion, up by 9.5%, led by Everest Re ($4.8 billion), PartnerRe ($4.2 billion) and Axis Capital ($3.7 billion).

The largest loss event for reinsurers stemmed from hailstorms in Germany and inland flooding in central Europe. Reinsurers also contended with U.S. severe thunderstorm activity and flooding in Alberta, Canada and parts of Queensland and New South Wales, Australia.

All told, Fitch says reinsurers posted the most improved underwriting results of all sectos, as well as the highest operating return-on-equity, “which is not surprising given the low catastrophe activity in 2013.”

Net income for the group was $5.1 billion, up from $4.8 billion in 2012. Everest Re led the group with $1.3 billion in net income, followed by RenaissanceRe ($666 million) and PartnerRe ($597 million).