Net income among U.S. P&C carriers increased nearly 52 percent to $39.9 in 2012, compared to 2011, according to a report from A.M. Best Co.
A.M. Best says the P&C industry continued to see favorable prior-year reserve development, but it declined in 2012 to about $11.8 billion from $13.1 billion in 2011. About 47 percent of the overall U.S. P&C industry reported favorable development in 2012, down from 60 percent in 2011.
The Oldwick, N.J.-based rating agency says it "continues to believe the industry loss reserves are in
a modestly deficient position overall," and the company is still worried that recognition of favorable developments could come back to bite carriers "when deficiencies ultimately are recognized."
A.M. Best says it predicts the industry will continue to release reserves in 2013 but the benefit of doing so will decline. Furthermore, it is concerned that "the industry has been overly optimistic about the effect of recent pricing actions on 2012 accident-year loss reserve selections." Additionally, even a small rise in inflation could affect reserves, resulting in "substantial shortfalls" for long-tail lines of insurance.
Rate increases primarily lessened underwriting losses to $14 billion from $30.1 billion in 2011 but A.M. Best says it is keeping a close eye on accident-year selections.
Even with losses associated with Superstorm Sandy in October 2012, catastrophe losses last year were $34.2 billion, down from $41.3 billion in 2011.
About $16.5 billion in catastrophe losses was recorded by U.S. insurers in the 2012 fourth quarter.
Policyholder surplus increased to $598.4 billion in 2012—a record that eclipsed the old high mark of $572.2 billion set in 2010, according to the rating agency.
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