NU Online News Service, Dec. 23, 9:02 a.m. EST
If U.S. property and casualty insurers do not manage capital and maintain underwriting discipline after the many profit-draining factors the industry faced during the first nine months of 2011, some companies could feel the pressure of ratings downgrades, says insurance rating agency A.M. Best Co.
In a new special report reviewing the first nine months of 2011, A.M. Best says it appears the P&C industry is seeing an overall stabilization in pricing but the rating agency then rattles off a list of negative influences the market is sure to continue to face in the year ahead.
"While rate increases will favorably impact underwriting results to some extent, the industry will continue to be negatively affected by deteriorating accident-year underwriting results, weather-related losses, the overall weal economic environment, the likelihood of less favorable prior-year loss reserve development, relatively los investment yields and increased volatility in the investment markets," A.M. Best concludes.
Overall P&C net income over the first nine months took a nose dive to $12.8 billion compared to $33 billion at the end of September, 2010 and the industry's combined ratio ballooned to 108.3 from 99.8 during the prior year period, according to A.M. Best.
Without prior-year reserve development, the industry's accident-year combined ratio was 111.5. While insurers led by State Farm Berkshire Hathaway and Travelers continued to release reserves, other like Liberty Mutual, American International Group (AIG) and Hartford strengthened reserves by about $1 billion through 2011's first nine months.
A.M. Best says it "expects this current trend of releasing reserves to continue through the remainder of the year, although at a reduced level as the overall level of reserve adequacy for the industry continues to erode.
The industry posted a $30 billion underwriting loss compared to a loss of $2 billion during the first nine months of 2010.
Estimated catastrophe losses (net of reinsurance and reinstatements) during the first nine months are $38.6 billion, says A.M. Best. Additionally, insurers and reinsurers were adversely affected by a low interest rate environment, volatile equity markets and widening credit spreads as of Sept. 30, the rating agency adds.
Policyholder surplus shrank to $542.7 billion, a 3.1 percent decrease from $560.1 billion at the end of 2010.
Overall net premiums written grew 3.3 percent to $334.4 billion nine months into 2011, A.M. Best says.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.