The U.S. property-casualty insurance industry showed continued improved operating performance in the first half of 2006, according to a report issued by Fitch Ratings Service today.
Based on first-half results and barring any unusual events going forward, Fitch said, the industry is likely to meet or exceed estimates for underwriting performance and net income for the full year.
Fitch analyst James Auden said the industry is unlikely to repeat the performance in the second half due to seasonal pressures.
"However, if insured catastrophe losses in 2006 return nearer to historic averages, the industry is poised to post strong underwriting profits for the full year," Mr. Auden said.
Specifically, the 2004 and 2005 hurricane seasons revealed the potential for greater frequency and higher severity of insured losses related to natural catastrophes. "This realization will continue to affect pricing and reinsurance availability in catastrophe-exposed lines for the foreseeable future," Mr. Auden said.
While midyear statutory results are not fully available, Fitch also has compiled a generally accepted accounting procedures (GAAP) based earnings release and Securities and Exchange Commission 10-Q filing data from publicly-traded property-casualty insurers in its debt rating universe, as well as several other insurance organizations of interest, to evaluate first-half 2006 performance.
The data shows, Fitch said, that the overall results for this subject group show improvement over the comparable prior period in underwriting results and profitability.
Roughly two-thirds of the organizations in the group reported improved underwriting results during the first half of the year, Fitch said.
Fifty-one of the 53 insurers in the Fitch universe reported an underwriting profit for first-half 2006, compared with 48 of 53 in the year-ago period.
Fitch said it believes these favorable results reflect a still adequate overall rate environment, an absence of unusually large catastrophe losses during both periods, and a trend of diminishing adverse loss reserve development, particularly for the 1997-2001 accident years.
Additionally, Fitch's group of 53 property-casualty organizations had combined earned premium revenue of approximately $124 billion during the first half of 2006, an increase of 2.1 percent from the prior-year period.
Earned premium revenue growth continues to gradually decline due to mostly flat or declining insurance rates in noncatastrophe-exposed business lines, Fitch said.
The firm found underwriting results improved for its universe in aggregate in the first half of 2006 relative to the year-ago period, as the average GAAP incurred loss ratio improved by 2.4 points to 58.9 percent and the average GAAP combined ratio fell 1.2 points to 87.9 percent.
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