US P&C Insurance Industry – Finally Back in Black? December 2013 BLOG POST
US P&C Industry is finally back in black on stronger underwriting results The U.S. P&C industry reported strong profitability through the mid-year of 2013, net operating income after taxes rose to USD24.5 Bn in H1 2013 from USD17.2 Bn in H1 2012. The improved underwriting results reflect growth in premiums and drop in losses (due to catastrophes). Overall improvement in underwriting results was driven by various key drivers, which have influenced the overall half yearly performance. •
Top line has witnessed a positive swing on the back of slightly improved economic environment. Net written premiums increased to USD240.9Bn in the mid-year of 2013, up 4% compared to the midyear of 2012, which is due to rising premium prices and increased exposures. Positive results for mid-year of 2013 were also registered from the gain in net investment income earned; which grew to USD27.1 Bn in mid-year 2013 from USD25.6 Bn in mid-year 2012.
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Combined ratio, which is a key measure of underwriting expenses and losses was down to 96.9% for mid-year of 2013 from 103.2% for mid-year of 2012 indicating overall improvement in underwriting
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Catastrophe losses fell from USD12.6 billion in the mid-year 2012 to USD9.9 billion in the mid-year 2013, helping the carriers’ bottom lines. Net LLAE (Loss and Loss Adjustment Expenses) were down by 1.5%, to ~USD158 Bn in mid-year 2013 from ~USD160.3 Bn in mid-year 2012.
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Underwriting results for mid-year 2013 were also benefited from USD8.5 Bn in favorable development of LLAE reserves. This favorable reserve development follows USD7.2 Bn in favorable development in mid-year 2012.
US P&C Insurance Industry – Finally Back in Black?
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Net Written Premiums US P&C Industry Net Written Premiums Trend, 2003-2012 (USD Bn)
419.8
2003
438.6
438.7
455.9
455.6
446.6
2004
2005
2006
2007
2008
428.3
432.3
446.6
464.2
2009
2010
2011
2012
US P&C Industry Net Written Premiums Trend, H104-H113 (USD Bn)
221.0
211.1
H104
H105
230.0
229.5
228.3
217.4
217.0
223.0
231.6
240.9
H106
H107
H108
H109
H110
H111
H112
H113
Net written premiums (NWP) in the year end 2012 increased by ~4% compared to 2011. This is the third consecutive year of growth in top line. Positive growth has continued in 2013 with NWP increasing by 4.02% at the end of mid-year 2013 compared to mid-year 2012. The growth was driven by slightly improved economic conditions and higher premium rates, particularly in the commercial market. According to the Council of Insurance Agents & Brokers, average commercial rate change has been up by 5.2% in 1Q 2013 followed by strong 5.2% increase in 2Q 2013.
US P&C Insurance Industry – Finally Back in Black?
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Investment Income US P&C Industry Net Investment Income and Yield Trend, 2003-2012 (USD Bn)
4.2%
4.0%
37.2
39.5
2003
2004
4.4%
4.4%
4.4%
4.2%
3.9%
3.7%
3.7%
3.6%
48.0
51.6
55.6
52.3
47.7
47.6
49.0
47.7
2005
2006
2007
2008
2009
2010
2011
2012
Net Investment Income Earned
Investment Yield
US P&C Industry Net Investment Income and Yield Trend, H104-H113 (USD Bn) 5.1%
5.1%
4.3%
20.8 H104
4.7%
4.5%
4.3%
4.4%
4.1%
3.9%
4.0%
26.0
29.4
29.2
29.0
25.6
27.8
27.1
25.4
27.0
H105
H106
H107
H108
H109
H110
H111
H112
H113
Net Investment Income Earned
Investment Yield
Net investment income earned in 2012 fell by 2.7% compared to 2011. Investment yield slightly fell by 0.1% to reach 3.6% in 2012 from 3.7% in 2011. Investment income remained low as a result of continued low interest rate environment, driven by low federal funds rate (FFR) which fell from 5.25% in June 2006 to just 0.25% ever since December 2008. Mid-year 2013 witnessed growth in investment income ever since mid-year 2010. Net investment income earned increased by 5.9% in the mid-year of 2013 compared to mid-year 2012. Investment yield increased marginally in mid-year 2013 compared to same period the previous year. The overall improvement in mid-year 2013 is majorly due to a sharp increase in net realized gains.
US P&C Insurance Industry – Finally Back in Black?
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Combined Ratio US P&C Industry Combined Ratio Trend, 2003-2012 100.2%
98.5%
100.8%
25.2%
25.5%
26.1%
75.0%
73.0%
2003
2004
92.7%
95.6%
105.2%
100.6%
102.6%
27.8%
28.2%
28.9%
108.3% 28.8%
103.2% 28.7%
27.2%
27.5%
74.7%
65.5%
68.1%
77.4%
72.4%
73.7%
79.5%
74.5%
2005
2006
2007
2008
2009
2010
2011
2012
Combined Ratio
Expense Ratio
Loss Ratio
US P&C Industry Combined Ratio Trend, H104-H113
94.6%
92.8%
92.2%
93.1%
24.9%
25.7%
26.0%
27.1%
69.7%
67.1%
66.2%
H104
H105
H106
102.3%
101.6%
102.1%
110.6% 28.6%
102.1%
96.9%
27.7%
28.4%
28.6%
66.0%
74.6%
73.2%
73.5%
82.0%
73.3%
68.4%
H107
H108
H109
H110
H111
H112
H113
Combined Ratio
Expense Ratio
28.8%
28.5%
Loss Ratio
Combined ratio for the year 2012 improved by 5.1% compared to 2011. The improvement was driven by 5.0% drop in loss ratio due to higher top-line returns and lower incurred losses and a slight improvement of 0.1% in expense ratio. The improvement trend from 2012 has carried over to mid-year 2013 where the combined ratio improved by 5.2% as compared to same period in 2012. This improvement was driven by the 4.9% drop in loss ratio and a slight improvement of 0.3% in expense ratio. The US P&C industry experienced improved results in mid-year 2013 compared to the same period in 2012. Whereby, the industry posted net underwriting gains in mid-year 2013 since mid-year 2007. Sources: NAIC, PCIAA, WCI (Workers’ Compensation Institute), Property Casualty 360
US P&C Insurance Industry – Finally Back in Black?
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