According to a new report from Fitch Ratings, statutory earnings for U.S. property/casualty (P&C) insurers materially improved in the first half of this year, with better underwriting performance tied to higher commercial lines pricing and diminishing effects of pandemic-related losses, as well as outsized investment gains.
Fitch noted that the industry is positioned for full-year results that exceed 2020 earnings, but further profit expansion will be tempered by recent natural catastrophe events, including losses related to Hurricane Ida and deterioration in personal auto results.
According to the report, most commercial market segments have benefited from sharp renewal rate increases over the past two years.
While the pace of price changes is decelerating, near-term earned premium growth will foster further loss ratio improvement in commercial lines through 2022.
Favourable prior underwriting period loss reserve development will also continue to boost overall results.
For the period ended June 30, 2021, P&C industry net earnings increased by 56% versus the prior year to $38 billion.
Net written premiums increased by 7% YoY, with very strong growth in commercial liability segments. The underwriting combined ratio showed modest improvement to 97.1%, with the change tied to expense and policyholder dividend ratio improvement.
The calendar year loss ratio increased in 1H21, with wide divergence in commercial and -personal lines results. Reported industry direct loss ratios show strong improvement in other liability and commercial auto segments.
Personal auto results materially deteriorated as driving activity and claims frequency normalise from unusual pandemic-influenced declines in 2020, while homeowners segment weakness reflect unusually high first-quarter winter storm losses.
The full-year industry combined ratio and ROS is anticipated to approximate midyear levels. Personal and commercial lines underwriting performance will likely diverge further in the second half of 2021.
Personal auto pricing actions are likely to lag deterioration in loss experience. The homeowner lines face further potential catastrophe-related insured losses on top of the $20 billion-$30 billion estimates by modelling firms for Hurricane Ida.
Statutory earnings growth and an 18% increase in industry policyholders’ surplus over the past 12 months to a level approaching $1 trillion are partly a function of favourable investment returns on equity and alternative investments and stable credit market conditions.
Surplus growth and improving capital adequacy measures are positive factors supporting ratings stability for covered insurers.
These factors also enhance insurers’ ability to withstand future volatility from events such as natural catastrophes, equity market correction, or reserve deficiencies emerging from a higher inflation environment.
