Is it luck or talent for the insurance industry? Alirt Insurance Research, in its 2015 review, notes insurers posted a combined ratio under 100 for the third year in a row. It's also the first time since the 1970s in which the industry has shown three back-to-back years of underwriting profit.
David Paul, a principal at Windsor, Conn.-based Alirt, says two factors cannot be overlooked. The first: lower catastrophe losses over the past three years compared with 2011 and 2012.
The second factor involves reserve releases. While the Alirt composite strengthened reserves in 2015 for the first time since 2005, reserve releases helped shave points off of the combined ratio in 2013 and 2014.
The Alirt P&C Composite is composed of 50 large U.S. property & casualty insurers, representing approximately 40% of total industry net written and 50% of total industry surplus.
Underwriting results
While underwriting results deteriorated slightly in both 2014 and 2015, the combined ratio remained under 100 in 2015, at 99.6.
Additionally, composite accident year results, at 99.5, outperformed reported results for the first time in a decade as the composite overall showed reserve strengthening as opposed to reserve releases. Alirt notes that the reserve strengthening does not appear to be an actual market trend.
In fact, Alirt says the aggregate price increases of mid-2011 to early 2013 "have now completely faded, indicating that the mini-'hard' market of 2012 and 2013 has run its course."
Premiums
While direct premiums rose 2% in 2015 year over year and net premiums climbed 3%, the rate of growth slowed in 2015, which Alirt says is in part because of the softening rate environment.
Net premiums in 2014 and 2015 were adjusted for a large reinsurance transaction involving the two lead subsidiaries in the GEICO group.
The continued premium growth, even as rate increases disappear, likely stems from a rise in insurable exposures connected to the improving economy and a reduced reliance on reinsurance, leading to higher net premium retention.
Surplus leverage
Surplus was positive for the fourth consecutive year in 2015, but growth was just 1.5% compared with 5.2% in 2014. Alirt says operating earnings of $21.4 billion were offset by net capital losses of $2.4 billion.
Alirt also says 31 of the 50 insurers that make up its composite reported an increase in surplus in 2015, and five companies reported increases of 10% or more. Allianz Global Risks U.S. Insurance Co.'s surplus climbed 145% as its parent contributed Fireman's Fund Insurance Co. to the company. Surplus for U.S. Fire Insurance Co. was up 31%, also benefitting from a surplus infusion from its parent, Fairfax Financial.
Of the 19 companies reporting surplus declines, eight reported decreases of 5% or more. ACE American Insurance Co. suffered the largest decline at -13.8%, followed by Philadelphia Indemnity Insurance Co. (-12.4%) and Federal Insurance Co. (-10.5%).
Annualized underwriting leverage, on both a gross and net basis, remained essentially flat. The low net premium leverage, adjusted for the two GEICO transactions, continues to reflect ample financial capacity in the U.S. property & casualty market, Alirt says in its report.
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