A decrease in natural catastrophe losses relative to 2017 helped drive positive mid-year results for U.S property and casualty (P&C) re/insurers, according to a report by Fitch Ratings.
Operating performance moderately improved for P&C re/insurers during H1 2018 thanks to improved core loss ratios, lower catastrophe-related losses and lower taxes along with favourable movement in loss reserves. The group operating return climbed to 8.0%, up from 6.8% in the prior year.
“There was considerable growth in net written premiums during the first six months of 2018 with double-digit increases in the personal, Florida homeowners and reinsurer segments that were most directly affected by the catastrophic events of 2017,” said Fitch Ratings’ Director, Christopher Grimes.
H1 2018 saw strong underwriting results with combined ratio dropping to 94.5%, down 2% from 2017.
Furthermore, calendar-year underwriting results improved across each of the primary insurance subsets in H1 2018, with the largest improvement coming from personal lines and Florida specialist segments; both groups benefited from price increases and favorable current accident-year loss ratios.
Fitch says prior-period loss reserve releases also provided a boost to underwriting performance, representing approximately 1.9% of earned premium in H1 versus 1.4% in the prior year.
The U.S Tax Cut and Jobs Act, which lowered the U.S corporate income tax rate and led to sizeable declines in effective tax rates reported by many companies, boosted net earnings. The group’s overall effective tax rate declined to 17.4% in H1 2018 compared with 24.5% in the H1 2017.
Fitch says the reinsurers group experienced the widest divergence between its operating and net return of equities (ROE) in H1 2018. A number of companies in the group reported changes in fair value of bond holdings through the income statement.
As a result of increased market interest rates during the period, the reduction in the fair value of fixed-income portfolios led to a decline in overall net earnings for the group.
