A.M. Best: Half-Year Results Hint at Year Three of Underwriting Profits

The property/casualty insurance industry is likely to post a third consecutive year of underwriting profits, considering its performance in the first half of the year and barring any late year catastrophic losses, according to rating agency A.M. Best.

The P/C industry grew its net premiums and improved its underwriting results and net income in the first half of the year over 2014 results.

Also, loss trends continued in insurers’ favor during the first six months of the year, A.M. Best said in its special report looking at property/casualty insurer results from the first half of 2015. These improvements were offset, however, by increased stockholder dividends and other changes in surplus and unrealized capital losses. As a result, policyholders’ surplus was essentially unchanged at June 30, 2015, at $683.7 billion, from its prior-year position despite the improved net earnings.

Earnings for the personal lines segment through the second quarter of 2015 increased substantially from the prior year-to-date.

Some of the highlights from this first-half report by A.M. Best include:

• Underwriting expense growth has outpaced premium growth through the first two quarters of 2015, with total underwriting expenses for the industry up 4.5 percent, to $71.7 billion;
• The overall industry recognized a higher level of favorable development of prior years’ core (i.e., not related to asbestos and environmental losses) loss reserves, with the combined ratio benefiting from 3.6 points of favorable development, up from 3.3 points during the first six months of 2014.
• The combined ratio for the total P/C industry in first-half 2015 was 97.8, a slight improvement from the 99.0 recorded in the same period in 2014.
• The commercial lines segment recorded a 5.4 percent increase in direct premiums written through June 30, 2015, to approximately $134.7 billion, up from approximately $127.8 billion during the same period last year. Key drivers of this increase continue to be workers’ compensation, other (general) liability, auto liability and inland marine.
• Equity holdings for the total P/C industry declined by 1.9 percent from their year-end 2014 value through June 30, 2015. Volatility in U.S. equity markets have driven the decline, which reflects sales of equities and unrealized losses on shares held at the end of the second quarter.
• Earnings for the personal lines segment through the second quarter increased substantially from the prior year-to-date. After-tax net income was $9.9 billion for the six months ended June 30, 2015, compared with approximately $7.3 billion for the first six months of 2014. The increase was attributed primarily to higher realized capital gains and pretax operating income.
• Pretax operating income of nearly $7.0 billion was up by 17.1 percent at the end of the second quarter of 2015, compared with just under $6.0 billion for the second quarter of 2014. The underwriting loss at mid-year 2015 was almost $745 million, compared with an underwriting loss of $2.3 billion for the same period in 2014. An increase in capital gains and a decline in incurred income taxes boosted net income by 17.9 percent over the prior year period, to $31 billion.

Source: A.M. Best