Property and casualty insurers' and reinsurers' 2013 first-halfprofitability grew compared to the same period in 2012, but thecurrent pricing cycle may be reaching its peak, a new reportsays.

Fitch Ratings says in its Special Report, “Property/CasualtyInsurers' Midyear 2013 Financial Results,” that its universe of 47P&C insurers and reinsurers reported an overall net profit of$27.8 billion for 2013's first half, a 14.9 percent increase overthe same period a year ago. The group benefitted from improvedunderwriting results due mostly to below-average catastrophe lossesand growth in earned premiums compared to the first six months of2012.

However, Fitch notes that the sector's results remain belowprevious hard-market underwriting profitability. The ratings agencyadds that further improvement in profitability going forward may bechallenging as rate increases are slowing and reinsurance pricecompetition is intensifying.

For 2013's first half, the 47 insurers and reinsurers inFitch's universe reports a 93.5 aggregate combined ratio for thefirst half of the year, down from 96.2 the year before. Fitch sats41 companies in the group reported underwriting profits for theperiod, compared to 32 in the previous year's first half.

Earned premiums grew by 5.5 percent, says Fitch, although theratings agency notes “the reported totals were slightly skewed bythree separate merger and acquisition events that took place overthe past year involving Markel Corp., Alleghany Corp. and ValidusHoldings, Ltd.” After adjusting for the transactions, Fitch saysnet-earned premium growth was 4.7 percent.

Overall favorable impact from prior-year reserve development wasessentially unchanged in 2013's first half compared to the yearbefore, says Fitch. Only seven insurers in Fitch's group reportedadverse reserve development, with Meadowbrook Insurance Groupseeing the greatest impact.

“Fitch continues to believe that after recognizing significantreserve redundancies over the last five years, the P&C industryloss-reserve position is gravitating toward adequate levels,” thereport says.

Expense ratios, which “rose significantly in the economicrecession of 2008-2009,” were essentially unchanged for 2013'sfirst half compared to the year before. Fitch says, “Expandingregulatory and compliance obligations, as well as technologyinvestments to bolster risk management and pricing capabilities,are contributing factors limiting expense ratioimprovement.”

The ratings agency says as rate increases slow and investmentcontribution to earnings remains limited, “insurers are likely tolook at rationalizing expense levels going forward to maintainprofitability.”