Lower catastrophe-related losses and benefits from premium rate increases across many product segments contributed to an improvement in U.S. P&C insurers' operating performance for the first half of 2013, according to Fitch Ratings' recent report, “U.S. Property/Casualty Insurers' Mid-Year 2013 Financial Results.”
After recognizing significant reserve redundancies over the last five years, the P&C industry loss reserve position is approaching closer to adequate levels, Fitch said. A handful of individual insurers have experienced unfavorable development thus far in 2013. However, favorable development continues to boost underwriting performance, representing approximately 2.4 percent of earned premium in first-half 2013 versus 2.5 percent in the prior year.
The aggregate combined ratio of 47 publicly traded property/casualty insurers improved to 93.5 percent through mid-year 2013 from 96.2 percent in the prior year. Each segment in Fitch's universe reported an accident year underwriting profit in the first half of 2013, with only nine individual companies posting deterioration in results.
The aggregate group reported an operating profit of $25.2 billion through mid-year 2013 versus a $23.3 billion operating gain in the previous year. The group's operating return on average equity (ROAE), which excludes realized gains and losses from earnings, grew to 9.1 percent in the first half of 2013 from 8.8 percent in the prior year.
The personal lines group reported a solid operating ROAE of 11.6 percent, which led all primary insurance segments. None of the companies in the personal lines segment reported an operating loss in the first half of 2013. The two largest writers in this group greatly influenced the combined result: Allstate and Progressive reported strong underwriting profits and ROAEs in excess of 10 percent for the period, according to the report. Only 15 others in the group have reported an annualized operating ROAE above 10 percent thus far in 2013.
As interest rates in the United States increased meaningfully in the second quarter, nearly all companies experienced sizeable gross unrealized losses in their fixed-income portfolios, according to the report. In the most recent quarter, the group aggregate net unrealized gain position dropped by 44 percent to $33.9 billion from approximately $60 billion at March 31, 2013.
