Barring any late-year catastrophic events, the U.S. P&C industry appears to be on track to post a third consecutive year of underwriting profits.
Net premiums written increased by 3.9% to $258.8 billion, while net income jumped 17.9% to $31 billion, A.M. Best says. However, policyholders' surplus remained flat from its 2014 position, due to increased stockholder dividends, other changes in surplus and unrealized capital losses.
Both commercial and personal lines underwriting improved in the first half of 2015. All major lines showed higher premiums—and growth of net premiums earned outpaced loss growth, which benefits the loss ratio.
Just as it did in the first six months of 2014, Private Passenger Auto leads all lines in direct premiums written, with $59.5 billion. Homeowners' & Farmowners' Multi-peril follows, at $45.8 billion.
Both personal and commercial lines show improvement in core underwriting through June 30, 2015, where pure loss ratio gains were seen of 0.5 and 1.2 points, respectively. However, underwriting expense growth has outpaced premium growth through the first two quarters of 2015, with total underwriting expenses up 4.5% to $71.7 billion, the report says.
Additionally, the P&C industry saw a higher level of favorable development of prior years' core loss reserve, with the combined ratio benefitting by 3.6 points.
More than half of the $8.1 billion in favorable reserve development was reported by two groups: State Farm Group, which posted $3.1 billion in favorable development, and Berkshire Hathaway Insurance Group, which had a $1.4 billion favorable change in its prior years' loss reserves, according to A.M. Best. The largest reserve increases were $244 million and $207 million by American International Group and Hartford Insurance Group, respectively.”
Personal lines
After-tax net income for personal lines came in at $9.9 billion through June 30, up from $7.3 billion for the first six months of 2014, due to capital gains and pretax operating income.
A.M. Best says that severe weather and incurred claims have driven rates up for Homeowners' Multi-peril; medical cost inflation has affected the severity of claims in Private Passenger Auto; and the rising prices of parts and labor have increased Auto Physical Damage rates.
At $7 billion, pretax operating income was up 17.1% in personal lines. Net premiums written increased by $11.7 billion to $142.4 billion, A.M. Best says, and net premiums earned rose by $11.6 billion to $139.4 billion.
Combined ratios came in at a break-even 100 through June 30, improved from 101.6 through the first half of 2014.
Commercial lines
According to the report, Workers' Compensation, other Liability, Auto Liability and Inland Marine are driving the increase in direct premium written in commercial lines, which recorded a 5.4% increase through June 30, to $134.7 billion. The Workers' Compensation market represents 20.2% of the total direct premium written. Rates are down for most states, with the exceptions of California and New York.
Underwriting performance improved to a combined ratio of 95.7, compared with 97.7 for the first half of 2014. A.M. Best says the 2-point improvement is due to lower catastrophe-related losses, higher levels of core favorable loss reserve development, better accident year loss performance and a decrease in policyholder dividends.
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