Property and casualty insurers and reinsurers reported improved profitability in 2013's first half compared to the same period a year ago, according to a recent Fitch Ratings report.
Click here for a summary of the entire industry's performance
But each of the five subsectors Fitch analyzed tells its own story regarding performance so far this year versus last. Click “Next” to see a breakdown of the subsectors—commercial diversified, regionals, specialty commercial, personal writers and reinsurance—as well as insight into areas of improvement and concern.
Commercial Diversified Insurers
Underwriting results for this group improved broadly compared to 2012's first half, says Fitch, with only 2 of 13 organizations analyzed (AIG and CNA Financial) failing to report an underwriting profit in the period. Alleghany Corp. was the only company in the group that saw no improvement over last year's first half underwriting results.
But Fitch notes that operating profitability for the group “continues to be driven lower for many companies by the low-interest-rate environment” that is suppressing investment income across the P&C sector. Still, just one company (The Hartford Financial Services Group) reported a consolidated operating loss in 2013's first half, and Fitch notes the loss was generated by businesses outside Hartford's P&C operations.
Favorable loss-reserve development shaved 1.9 points off of the group's combined ratio, which is slightly greater than the 1.8 points in 2012's first half.
Net earned premiums for the group grew by 4.5 percent in the first six months of 2013 compared to the same period a year ago. Three companies reported modest declines in earned premiums—AIG (-3.4 percent), White Mountains (-1.5 percent) and Hartford (-0.9 percent)—while Alleghany (+40 percent) and Berkshire (+9.9 percent) reported the greatest gains. Fitch notes that Alleghany's outsized earned-premium growth is skewed by the company's March 2012 acquisition of Transatlantic Reinsurance Holdings. Adjusting for the acquisition, Alleghany's earned-premium growth totals 3.8 percent.
Insurers in Group and 1H13 vs. 1H12 Operating Earnings
($ Millions)
| Insurer | 1H13 | 1H12 |
| Ace Limited | 1,536 | 1,444 |
| Alleghany Corp. | 286 | 601 |
| American International Group, Inc. | 3,702 | 5,437 |
| Arch Capital Group Ltd. | 294 | 255 |
| Berkshire Hathaway Inc. | 8,503 | 6,618 |
| Chubb Corp. | 1,029 | 843 |
| CNA Financial | 435 | 378 |
| Fairfax Financial Holdings Limited | 237 | 43 |
| The Hartford Financial Services Group, Inc. | (47) | 163 |
| Liberty Mutual Holding Company Inc. | 853 | 454 |
| The Travelers Companies, Inc. | 1,703 | 1,296 |
| White Mountains Insurance Group, Ltd. | 110 | 116 |
| XL Group plc | 501 | 387 |
| Diversified Total | 19,143 | 18,036 |
Source: SNL Financial, Company reports, Fitch
Regional Insurers
While Fitch says regionals continue to be the weakest performers overall in its universe from an underwriting standpoint, the group did report the biggest improvement in year-to-year underwriting results. Fitch attributes the improvement to modest pricing improvement in smaller commercial markets and a decline in tornado and inland storm-related losses compared to recent years.
All of the six insurers in this group posted improved calendar-year underwriting results in 2013's first half compared to the same period a year ago, and only State Auto Financial Corp. failed to report an underwriting profit, Fitch notes.
All of the companies managed to report an operating profit for the period, and as a group regionals reported an 89 percent year-over-year increase in aggregate operating earnings compared to 2012's first half.
Regionals managed these results despite diminished levels of favorable reserve development. Reserve releases shaved 1.9 points off of the group's combined ratio, compared to 3.1 points in 2012's first half
Insurers in Group and 1H13 vs. 1H12 Operating Earnings
($ Millions)
| Insurer | 1H13 | 1H12 |
| Cincinnati Financial Corp. | 228 | 105 |
| Erie Indemnity Company | 81 | 78 |
| The Hanover Insurance Group Inc. | 107 | 56 |
| Selective Insurance Group, Inc. | 44 | 15 |
| State Auto Financial Corp. | 21 | (14) |
| United Fire Group, Inc. | 34 | 32 |
| Regional Total | 514 | 272 |
Source: SNL Financial, Company reports, Fitch
Specialty Commercial Insurers
After several years of outperforming the other two commercial subsectors, specialty insurers now report underwriting results and overall profitability more in line with diversified and regional insurers, says Fitch.
Still, the ratings agency calls the subsector's 2013 first-half results “solid and largely unchanged versus the prior-year period.” Employers Holding, Inc. and Meadowbrook were the only 2 of the 12 specialty insurers in Fitch's universe to report combined ratios over 100.
Though operating results were generally positive, Fitch says 9 of the 12 companies reported a decline in common equity for 2013's first half due to $1.3 billion of unrealized investment losses and $381 million of share repurchases.
The group reports an overall 11.2 percent growth in net earned premiums in the period due mostly to the commercial lines rate environment. Adjusting for Markel's May 2013 acquisition of Alterra, net earned premiums grew by 8.3 percent.
Insurers in Group and 1H13 vs. 1H12 Operating Earnings
($ Millions)
| Insurer | 1H13 | 1H12 |
| American Financial Group, Inc. | 168 | 175 |
| Argo Group International Holdings, Ltd. | 41 | 29 |
| Assurant, Inc. | 229 | 316 |
| Employers Holdings, Inc. | 20 | 10 |
| HCC Insurance Holdings, Inc. | 180 | 171 |
| Markel Corp. | 98 | 134 |
| Meadowbrook Insurance Group, Inc. | (7) | (1) |
| Navigators Group, Inc. | 23 | 19 |
| Old Republic International Corp. | 158 | (50) |
| ProAssurance Corp. | 105 | 108 |
| RLI Corp. | 50 | 46 |
| W.R. Berkley Corp. | 202 | 197 |
| Specialty Total | 1,267 | 1,153 |
Source: SNL Financial, Company reports, Fitch
Personal Lines Writers
The six personal-lines insurers in Fitch's universe all reported improved underwriting results thanks to modest pricing improvement and stabilizing loss severity, and just one company, Horace Mann Educators Corp., reported an underwriting loss for 2013's first half.
Operating income for the group grew by 17.1 percent compared to 2012's first half.
Fitch notes that this group reports “a significant decrease in the amount of aggregate favorable reserve development during the first half of the year,” adding that Progressive and Infinity Property and Casualty Corp. each report unfavorable development for the second year in a row.
Insurers in Group and 1H13 vs. 1H12 Operating Earnings
($ Millions)
| Insurer | 1H13 | 1H12 |
| The Allstate Corp. | 1,176 | 1,142 |
| Horace Mann Educators Corp. | 39 | 33 |
| Infinity Property and Casualty Corp. | 13 | 10 |
| Kemper Corp. | 74 | 33 |
| Mercury General Corp. | 72 | 49 |
| Progressive Corp. | 494 | 328 |
| Personal Total | 1,868 | 1,595 |
Source: SNL Financial, Company reports, Fitch
Reinsurers
Despite increased catastrophe losses for the group in 2013's first half, reinsurers in Fitch's universe report an improved calendar-year combined ratio thanks to increased net earned premiums.
Catastrophes added 5.6 points to the group's combined ratio, compared to 3.6 points in 2012's first half. The larges loss was inland flooding in Germany and central Europe, while flooding in Alberta, Canada and parts of Queensland and New South Wales, Australia also contributed to the total.
Net realized investment losses of $314 million—compared to $564 million in realized gains for the first six months of 2012—drove a 4.4-point decline in net return on equity for reinsurers, although strong operating earnings led to a 13.2 percent operating return on equity, which is up from 12.8 percent in 2012's first half.
Reinsurers in Group and 1H13 vs. 1H12 Operating Earnings
($ Millions)
| Reinsurer | 1H13 | 1H12 |
| Allied World Assurance Company Holdings Ltd. | 188 | 179 |
| Aspen Insurance Holdings Ltd. | 138 | 176 |
| Axis Capital Holdings Ltd. | 278 | 249 |
| Endurance Specialty Holdings Ltd. | 153 | 121 |
| Everest Re Group, Ltd. | 554 | 463 |
| Montpelier Re Holdings Ltd. | 116 | 119 |
| RenaissanceRe Holdings Ltd. | 273 | 267 |
| PartnerRe Ltd. | 253 | 324 |
| Platinum Underwriters Holdings, Ltd. | 116 | 77 |
| Validus Holdings, Ltd. | 327 | 264 |
| Reinsurers Total | 2,395 | 2,239 |
Source: SNL Financial, Company reports, Fitch
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