Property and casualty insurers’ and reinsurers’ 2013 first-half profitability grew compared to the same period in 2012, but the current pricing cycle may be reaching its peak, a new report says.
Fitch Ratings says in its Special Report, “Property/Casualty Insurers’ Midyear 2013 Financial Results,” that its universe of 47 P&C insurers and reinsurers reported an overall net profit of $27.8 billion for 2013’s first half, a 14.9 percent increase over the same period a year ago. The group benefitted from improved underwriting results due mostly to below-average catastrophe losses and growth in earned premiums compared to the first six months of 2012.
However, Fitch notes that the sector’s results remain below previous hard-market underwriting profitability. The ratings agency adds that further improvement in profitability going forward may be challenging as rate increases are slowing and reinsurance price competition is intensifying.
For 2013’s first half, the 47 insurers and reinsurers in Fitch’s universe reports a 93.5 aggregate combined ratio for the first half of the year, down from 96.2 the year before. Fitch sats 41 companies in the group reported underwriting profits for the period, compared to 32 in the previous year’s first half.
Earned premiums grew by 5.5 percent, says Fitch, although the ratings agency notes “the reported totals were slightly skewed by three separate merger and acquisition events that took place over the past year involving Markel Corp., Alleghany Corp. and Validus Holdings, Ltd.” After adjusting for the transactions, Fitch says net-earned premium growth was 4.7 percent.
Overall favorable impact from prior-year reserve development was essentially unchanged in 2013’s first half compared to the year before, says Fitch. Only seven insurers in Fitch’s group reported adverse reserve development, with Meadowbrook Insurance Group seeing the greatest impact.
“Fitch continues to believe that after recognizing significant reserve redundancies over the last five years, the P&C industry loss-reserve position is gravitating toward adequate levels,” the report says.
Expense ratios, which “rose significantly in the economic recession of 2008-2009,” were essentially unchanged for 2013’s first half compared to the year before. Fitch says, “Expanding regulatory and compliance obligations, as well as technology investments to bolster risk management and pricing capabilities, are contributing factors limiting expense ratio improvement.”
The ratings agency says as rate increases slow and investment contribution to earnings remains limited, “insurers are likely to look at rationalizing expense levels going forward to maintain profitability.”