P/C Earnings Soar in Q2; Specialty Insurer Premiums Grow Most: Moody’s

August 22, 2013

In spite of slowing rate hikes, property/casualty insurers rated by Moody’s reported an aggregate 58 percent jump in bottom-line results for second-quarter 2013, with combined ratio improvements and a 3 percent rise in investment income contributing to the jolt.

Compiling the results of 26 P/C carriers using data from SNL Financial, Moody’s found that the overall combined ratio fell to 97 from 100 in last year’s second quarter, noting that the return to underwriting profit was driven primarily by lower catastrophe losses.

In a report published on Thursday, Moody’s revealed that 19 of the 26 carriers included in its analysis reported second-quarter 2013 combined ratios below break-even, with 17 carriers reporting lower combined ratios in the 2013 second quarter than in the same period of 2012.

According to a table set forth in the report, four carriers saw their combined ratios fall by 10 or more points: Kemper, Cincinnati Financial, Selective Insurance Group and Horace Mann Educators.

Speaking about the 26-carrier grouping overall, Moody’s said that underlying combined ratios continued to improve as earned rate increases outpaced relatively benign loss cost trends. The rating agency added that while reserve releases were slightly lower than last year for Moody’s rated universe, the takedowns are still providing meaningful earnings support.

“The rate environment largely remained stable, with most companies still reporting healthy rate increases across all business lines,” added Ji Liu, a Moody’s analyst and author of the report, in a statement. “However, some insurers reported a slight slowdown in the pace of rate increases in selected lines, most notably commercial property and large-account business.”

In the report, Liu also noted that some standard carriers are still re-underwriting portfolios and actively shedding business, stating that this business is continuing to make its way into the excess and surplus lines market.

Overall, the 26 companies saw net written premiums increase 4 percent in the quarter, with specialty carriers Markel, ProAssurance, Assurant, RLI, W.R. Berkley, and Infinity Property and Casualty all showing double-digit increases.

For Markel, a 64 percent increase in net premiums reflected the acquisition of Alterra, which closed in May 2013.

Markel was one of only six carriers included in the Moody’s report to record declines in net income for the quarter compared to second-quarter 2012. The other carriers reporting lower net income during the second quarter were HCC Insurance Holdings, ProAssurance, Assurant, American Financial Group and OneBeacon Insurance Group.

Moody’s said it expects rate momentum for commercial lines to remain positive, with no significant changes expected over the near-to-medium term.

Still, the commercial sector’s prospects “for meaningfully enhanced earnings generation is limited,” the Moody’s report said, noting that “plentiful capacity will continue to dampen the upward trajectory of rates.”

On the capital front, overall shareholders’ equity was flat for the 26-carrier grouping analyzed by Moody’s.

In addition to shareholders’ equity, net income, combined ratios and net written premiums, the report included investment income figures for each of the 26 companies.

The Moody’s report noted that a 3 percent increase in net investment income for the group was attributable to strong alternative investment income and largely driven by investment income spikes at CNA and AIG (23 percent and 14 percent, respectively). Excluding those two carriers, net investment income fell roughly 2 percent for the remaining carriers as a group.