Operating performance for U.S. property/casualty insurers has improved substantially in the first six months, according to “U.S. Property/Casualty Insurers' Mid-Year 2012 Financial Results,” from Fitch Ratings.
In aggregate, the combined ratio of 47 publicly-traded insurers and reinsurers was 96.2 percent for the first six months of this year, compared to 107.9 percent for the same period last year, attributable to reductions in catastrophe-related losses, which were down to approximately 4 percent of earned premium from 16 percent in the same period last year. Premium rate increases and other underwriting actions led to modest core loss ratio improvements.
A large number of insurers and reinsurers generated underwriting profits, and underwriting results improved for 41 of 47 companies in Fitch's universe of (re)insurers.
Reinsurance specialists experienced the most dramatic performance increase, as there have been far fewer catastrophic events than last year; regional underwriters posted underwriting losses and weaker earnings attributable to inland-storm related losses and inadequate pricing.
Operating profits for the group were $22.4 billion, compared with $10.2 billion for the same period last year. Return-on-average equity (ROAE), which excludes realized investment gains and losses from earnings, grew to 8.5 percent from 4.1 percent in the prior year. Seventeen companies reported an operating ROAE above 10 percent compared with three companies in the same period last year.
Shareholders' equity grew by 5 percent since year-end 2011, as earnings growth was coupled with higher unrealized gains. Share repurchase activity declined compared to the same period last year, as underwriting opportunities improved. Underwriting leverage, measured by annualized first-half net earned premiums divided by common equity, declined modestly year-over-year to 0.5x, the report said.
Commercial line pricing improvements are likely to continue through year-end 2012 and into early 2013. A return to the broad hard market and strong operating performance of the mid-2000s remains unlikely, the report said.
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