Despite initial concerns about the impact of Superstorm Sandy on 2012 results, a collection of U.S. P&C insurers reported manageable underwriting losses for the year, according to ALIRT Insurance Research. Following is a 2012 performance breakdown for the ALIRT P&C Composite, made up of 50 large P&C insurers representing about 53 percent of total industry net-written premiums. All charts and analyses are from ALIRT.
After reaching a multi-year high in 2011, due in part to substantial storm/catastrophe losses, 2012 accident-year underwriting ratios improved notably despite large losses from Sandy. The year’s reported results continued to benefit from reserve releases, which were down from 2011 levels, but remained substantial, according to ALIRT.
The 2012 operating ratio improved mainly due to a lower combined ratio, but was hurt by lower investment income.
Net and direct premium growth rates continued to accelerate in 2012, although direct premiums grew more slowly than net premiums. ALIRT says the differing growth rates are in part explained by increased assumed premiums outweighing modestly higher ceded premiums, which generated larger net retentions.
After declining in 2011, surplus grew 8.3 percent in 2012 (above), driven mainly by solid operating income, despite Sandy losses, and strong net-capital gains.
ALIRT says premium leverage (below) remains “fairly low and stable.”
After declining sharply in 2011, due in part to large catastrophe losses during the year, returns on equity (above) and earned premiums (below) improved sharply during 2012, ALIRT says. The firm notes, though, that returns remain below the returns generated from 2007-2010.
The ALIRT Composite generated almost break-even underwriting results (above) through nine months 2012, but this turned to an underwriting loss for year, driven for the most part by Sandy-related claims during Q4, ALIRT says. The firm notes that, despite low interest rates, investment gains continue to exceed underwriting losses.
The industry's net-investment yield (below) continues to be dampened by low interest rates, but ALIRT says net capital gains “provided a substantial boost to net total return in 2012 as equity markets improved.”
Favorable prior year reserve development (above) eased in 2009-2010, but ALIRT says reserve releases were large again in 2011 and 2012.
The reported combined ratio continued to benefit from favorable reserve development (below) in 2012, but less so than in 2011.
The ALIRT P&C Composite Index, which tracks industry financial performance, was volatile for both the commercial- and personal-lines composites during the first nine months of the year, ALIRT says. The Index deteriorated slightly for the personal-lines composite in Q4, but was flat for the commercial-lines composite, as, observes ALIRT, Sandy-related losses appear to have so far impacted personal-lines writers more heavily than commercial-lines writers.