NU Online News Service, May 16, 2:43 p.m. EDT
U.S. property and casualty insurers saw 2012 first-quarter net income soar by 69 percent as lower catastrophe losses helped drop the industry's combined ratio to 96, compared to 102 a year ago, according to a Moody's Investors Service analysis.
In a report titled "U.S. P&C Insurers' 1Q12 Earnings Improve on Lower Cats; Pricing Momentum Continues," Moody's says the industry enjoyed a relatively quiet quarter with respect to catastrophes, although March tornadoes caused about $1.2 billion in estimated insured losses, hurting some regional carriers.
Insurers achieved rate increases across nearly all lines of business in the quarter, says Moody's, driving net written premiums up 4 percent for Moody's rated companies compared to 2011's first quarter. "Underwriting standards are becoming tighter in conjunction with a gradually improving cycle across most lines of business," says Moody's.
Citing pricing surveys and conference calls, Moody's says commercial-lines insurers are reporting mid-to-high single-digit rate increases, with property and workers' compensation showing the steepest hikes.
Excess and surplus business also appears to be growing, according to Moody's, an observation in line with recent market reports. Moody's says the movement of business back to E&S carriers "is typically a sign of an improving insurance market as it indicates that standard-market carriers are tightening their underwriting practices and shedding business."
One downside to rate increases from an insurer's perspective is that business retention has modestly declined. But Moody's says overall retention has remained strong for the majority of companies.
Reserve releases declined in the quarter, modestly offsetting the favorable conditions that boosted earnings in the quarter.
Moody's says, "We expect that reserve releases will continue to decline in 2012, particularly as companies likely have moderate deficiencies in standard-commercial lines for the most recent accident years."
Moody's notes that several companies are already reporting adverse reserve adjustments on commercial-auto liability for the first quarter, while a few companies are reporting adverse reserve development for personal auto liability due to rising severity trends.
Looking forward, Moody's says the pricing environment and recovering economy, along with relatively benign loss-cost trends, should "help to alleviate pressure on 2012 accident-year loss ratios, which for certain lines remain high."
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