Net income for P&C insurers increased almost 50 percent in 2012 compared to the year prior, driven by higher earned premiums and slightly-lower, but still high, catastrophe losses, according to a special comment from Moody’s Investor Service. For most insurers, investment income increased modestly and reserve releases were down.
“The favorable pricing momentum and gradually improving economy, coupled with relatively benign loss cost trends, will benefit accident year loss ratios and underwriting margins for 2013 (excluding catastrophes). Retention ratios should remain relatively stable as the rate increases are broad based across the industry,” according to Moody’s “US P&C Insurers Earnings Improve in 2012 Despite High CATs; Pricing Momentum Continues” statement. “Offsetting these positive factors are headwinds from tapering loss reserve releases and still-low investment yields, which are placing pressure on operating margins but should support the improving pricing environment.”
Highlights from the report:
Rates for personal line rates also continued to increase; homeowners’ insurers reported rate increases in the mid-to-high single digits, and depending on geography, sometimes double digits.
Insurers also tightened underwriting standards and adjusted reinsurance programs, Moody’s said, as a response to “record high frequency, lower severity weather-related events in 2011.” Excluding catastrophes, homeowners’ profitability increased year-over-year, based on earned-rate increases, underwriting changes and lower non-catastrophe weather related loss compared to 2011.
“We expect insurers to continue raising rates, increasing deductibles, and tightening terms and conditions into 2013 in order to further improve margins in this volatile business line,” Moody’s said.
For personal auto, rate increases were in the low-to-mid single digits. Rate increases accelerated in the later part of the year, as many insurers experienced an elevated loss severity trend for bodily injury claims and property damage. In response, Moody’s said leading companies are deploying new products and/or advanced data analytics to help attract profitable new business.
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