The property and casualty industry posted its first half-year underwriting profit since 2007 and saw net income and pretax operating income increase by 65 percent and 40 percent respectively compared to 2012's first half, a new report states.
According to an A.M. Best six-month financial review, the industry benefitted from lower catastrophe losses, stabilizing investment income, improvements in the pricing environment and a boost in exposures as the economy recovers.
Policyholder surplus reached a record level at $627 billion, representing a 7.4 percent increase over 2012's first half, says A.M. Best. "Favorable net income and a $20 billion shift in the industry's unrealized capital gain position, to a $17.5 billion unrealized gain from a $2.5 billion unrealized loss for the same period in 2012, were the primary drivers of the increase," states the report.
Personal lines saw after-tax net income increase by 53.3 percent, to $8.1 billion, while underwriting income swung to positive territory—$0.7 billion compared to an underwriting loss of $2.6 billion in 2012's first half. "Several factors contributed to the improved underwriting results, including increased net premiums earned and fewer catastrophe losses, which was offset somewhat by less favorable development of prior years' loss reserves," says A.M. Best.
The report notes that reserves continued to develop favorably, but at a lower rate. "There was $5.8 billion, or 4.7 points, of favorable prior accident-year reserve development for the personal lines segment, compared with $6.4 billion, or 5.5 points, through the same period in 2012," the report explains.
The personal lines combined ratio was 98.8, down from 101.6 in 2012's first half.
For commercial lines, premium volume increased thanks to improved pricing and a recovering exposure base.
The segment's combined ratio improved to 95.1 from 101.8 for the same period a year ago, driven by lower catastrophe losses and pricing improvements.
Four points were shaved off of the combined ratio thanks to favorable reserve development for prior accident years, compared to 2.3 points in 2012's first half. But A.M. Best notes that it "remains concerned with the industry's loss-reserve position—particularly for commercial lines—given the extended soft-market cycle, which eroded pricing adequacy during those prior years while reducing the available loss-reserve cushion."
The ratings agency adds, "In light of the level of favorable development recognized on recent accident years, the available cushion of reserve redundancies has declined and may not provide the same support to future calendar-year results."
Commercial-lines net income was up by 84 percent compared to the same period last year to $20.4 billion. The net income benefitted from $9 billion in capital gains compared to $3.4 billion in 2012's first half.
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