Despite improved results in 2012, statutory operating performance for the U.S. P&C industry and 20 of the largest market participants over a five-year period (2008-2012) was relatively weak compared to historical industry norms, according to Fitch Ratings.
The rating agency’s recent report, “Statutory Performance Rankings (2008-2012),” which analyzes companies’ and the industry’s underwriting performance, net profit margin, cash flow, return on capital and internal capital formation, concludes that soft market pricing conditions, large catastrophe losses and the 2008-'09 economic recession all contributed to a challenging operating environment.
In the report, Fitch ranks the companies based on operating ratio and, in addition, an aggregate weighting of the ratios provides a comprehensive ranking of operating performance. The insurers with the highest total rank are publicly traded companies with a long history of strong operating performance, including Chubb Group of Insurance Companies, The Progressive Corporation and The Travelers Companies. These companies have demonstrated operating success throughout all phases of the underwriting cycle.
Large mutual insurers gravitated toward the weaker performing underwriters over the most recent five-year period given a reduced focus on high profitability and less levered balance sheets. The insurers with the lowest total rank are Nationwide Mutual Insurance Co., State Farm Mutual Automobile Insurance and Farmers Insurance Group. These mutual or mutual-like companies are not subject to the same shareholder pressure for returns on capital as the previously mentioned insurers.
Although Fitch expects further improvement in profitability during 2013, shifts from lower-tier performers to top-tier performers are infrequent.
