"Overall improvement in full-yearresults will again hinge on second-half catastrophe experience,"Christopher A. Grimes, director, insurance at Fitch Ratings, saidin a statement. (Photo: Shutterstock)

Operating performance remained consistent with prior-yearresults for a group of 47 property & casualty (P&C)insurers and reinsurers in the first half of 2019 as a modestweakening in calendar-year underwriting margin was offset by higherinvestment income, according to a new report by Fitch Ratings.

The sectors outlook for the U.S. P&C sector as well as forthe global reinsurance remains stable, reflecting an improvement inmarket fundamentals with generally favorable pricing trends in mostlines and along with several other factors across the sectors.Fitch also maintains a stable rating outlook for the commercial,personal and reinsurance sectors.

Recent reinsurer earnings call commentary frequently highlightsbenefits from improved pricing in numerous segments. However,underlying loss ratios in aggregate were virtually unchanged periodto period. Changes in the group's combined ratio were more greatlyinfluenced by reductions in favorable loss reserve development,offset by lower expense ratios and catastrophe-related losses.

First half analysis

The last two years were affected by large fourth-quartercatastrophe losses from hurricanes and Californiawildfires. Catastrophe losses in the first half of 2019were generally contained within primary insurers' retentions, withlimited losses contributing to reinsurer results. Fitch expectsthat Hurricane Dorian, the first major hurricane of2019, will have a meaningful impact on results for thesecond half of 2019.

Operating earnings for the group expanded by 4% for the periodversus the first half of 2018. Operating return on averageequity (ROAE) was unchanged at 8.3% in the first half of2019. Twenty-three of the 47 companies reviewed reported anoperating ROAE above 10% for the period.

Separately, growth in investment earnings, particularlyunrealized gains on equities and fixed income holdings stronglycontributed to an 11% increase in the group's shareholders' equityto $748 billion at mid-year 2019 from $674 billion for the yearending 2018, helped also by strong net earnings. More volatileequity market performance and potential for greater second-halfshare repurchase activity may likely reduce the pace of book valuegains over the remainder of the year.

"Improved pricing in many product lines is likely to supportperformance through the second half of the year," Christopher A.Grimes, director, insurance at Fitch Ratings, said in a statement."Overall improvement in full-year results will again hinge onsecond-half catastrophe experience."

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