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Combined ratio for U.S. property and casualty insurers up to 96% in Q1 2015 from 97.3% in Q1 2014: A.M. Best


July 20, 2015   by Canadian Underwriter


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The combination of improved underwriting results and higher net investment income helped produce a 12.9% increase in pre-tax operating income for the United States’ property/casualty industry in the first quarter of 2015 over the prior year first quarter, according to a report released on Monday by ratings firm A.M. Best Company.

The Best’s Special Report, titled Mixed Results for Property/Casualty Segment During the First Quarter of 2015, said that higher realized capital gains and lower income taxes contributed to a US$5.3 billion increase in the industry’s net income, to US$18.2 billion for the quarter.

As of June 17, the reported combined ratio for the U.S. property and casualty industry was 96% in Q1 2015, from 97.3% in Q1 2014

The report also noted that incurred losses, loss adjustment expenses (LAE) and underwriting expenses all increased at a slower pace than net premiums earned and net premiums written, driving the improvement in underwriting results for the quarter, reflected in a combined ratio of 96%, from 97.3% in the first quarter of 2014. “Pure losses increased by 1.7% in the quarter, benefitting from lower catastrophe losses, which declined by US$244 million year-over-year and contributed 3.1 points to the loss ratio (a decline of 0.3 points, or 6% over the prior year).”

Direct premiums written for the industry grew by 3.9% in Q1 2015, with the three largest lines – private passenger auto liability, auto physical damage and homeowners & farmowners multi-peril – all showing “continued solid growth,” A.M. Best said. The strongest growth rate was in the commercial auto liability line (a 9.3% change from Q1 2014 to Q1 2015), which saw profitability challenged in 2013 and 2014 by increased claim severity. Premiums for auto physical damage (including both personal and commercial vehicles) had the second largest percentage increase, up 6.8% from the first quarter of 2014.

Related: U.S. p&c insurers’ profitability grows by over US$4 billion in first quarter of 2015

Earnings for the personal lines segment for Q1 2015 also “increased significantly” compared to Q1 2014, the ratings agency said. After-tax net income was US$7.7 billion for the three months ended March 31, 2015, compared with approximately US$4.8 billion for the first three months of 2014. The increase was attributed primarily to higher pre-tax operating income and higher realized capital gains. “The personal lines segment reported a profitable calendar-year combined ratio of 97.1 through the first three months of 2015, compared with a combined ratio of 99.6 through the first three months of 2014,” the report noted. [click image below to enlarge]

Direct premiums written for the industry grew by 3.9% in Q1 2015, with the three largest lines – private passenger auto liability, auto physical damage and homeowners & farmowners multi-peril – all showing “continued solid growth,” A.M. Best reported

For the commercial lines segment, the first quarter 2015 underwriting performance improved from the prior year’s first quarter, with a combined ratio of 95.5, compared to 96.6 for Q1 2014, with the segment generating an underwriting gain of US$1.2 billion, up 24.5% from Q1 2014. The improvement is attributable to lower cat-related losses, higher levels of favourable loss reserve development and slightly better accident year loss performance. In addition, the lower nat-cat-related losses in this segment accounted for approximately 2.6 points of the combined ratio in the first quart of 2014, down approximately 2.9 points during the same prior-year period.

Underwriting income for the first quarter of 2015 was US$1.8 billion, compared with US$550 million for the same period in 2014, driven primarily by an increase in net premiums earned, which was up US$8.5 billion, or 13.9%, to US$69.2 billion.