Financial results for the U.S. P&C industry were significantly improving as of late October, compared with substantial underwriting losses in 2011, despite challenges posed by persistently low interest rates, according to “Catastrophes Drive Underwriting Loss in 2012; Better Results Expected in 2013,” from A.M. Best. As of Sept. 30, 2012, the industry achieved a “near break-even” combined ratio of 100.1, and net income more than twice the 2011 level.

Superstorm Sandy, which hit the east coast on Oct. 29, 2012, likely will become the second-costliest U.S. natural disaster in terms of insured losses; 2005’s Hurricane Katrina is remains the most costly. Sandy’s impact has been seen on income statements throughout the industry, as underwriting losses increased by $26 billion and net income dropped $10 billion during Q4, as per A.M. Best’s estimated results for the full year of 2012. CAT losses for 2012 declined slightly to $43.0 billion from $44.2 billion in 2011, A.M. Best said, and the surplus is projected to grow 1.5 percent to $575.8 billion in 2012. After-tax return on equity will decline to 3.6 percent from 4.7 percent in 2011, the company said.

According to A.M. Best, several signs indicate improved results for 2013, including rising net premiums written (NPW) and policyholders’ surplus. Pricing should improve in 2013, though rate increases may be smaller. Sluggish economic growth, persistently-low investment yields and the current loss reserve positions will present challenges, but A.M. Best said the industry is sufficiently well-capitalized. A.M. Best estimated NPW increased 4.9 percent in 2012, to $463.8 billion from $442.2 billion in 2011. Net premiums earned (NPE) also are expected to increase 4.1 percent to $455.1 billion, reflecting past rate increases.

The A.M. Best outlook for personal lines is “stable.” Weather volatility is expected to continue affecting property lines; the automobile segment remains stable.

“With over 60 percent of the segment coming from the more stable automobile business, rating affirmations will dominate again in 2013, although concentrated property writers who do not have adequate plans to address volatility in the line may come under continued rating pressure,” A.M. Best said.

A.M. Best’s outlook for commercial lines remains “negative” for 2013. “Insurers are still grappling with competitive market conditions, less favorable loss reserve development, sluggish economic growth and depressed investment yields; and these factors will most likely result in more negative rating actions than positive rating actions during this year,” A.M. Best said, adding that core accident-year margins likely will continue improving, due to price firming. Without a major CAT event, the commercial sector would remain well-capitalized.

“Movement of reserves for more recent accident years and steps taken to bring pricing to levels that adequately reflect loss trends will be key areas of focus in commercial lines ratings,” A.M. Best said.

For the reinsurance sector, the company maintained its stable outlook, as it continues to be supported by “strong risk-adjusted capitalization, judicious enterprise risk-management practices and a relatively stable pricing environment across a broad array of business classes,” which should contribute to reinsurers’ overall financial position.

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