US P&C sector operating return up 8% in H1

US property/casualty (P&C) re/insurers have improved operating returns by 8.0 percent year on year in the first half of 2018 after an increase of 6.8 percent in the same period of 2017, according to Fitch Ratings.

The 50 organizations included in the Fitch analysis experienced core loss ratio improvement, reduced catastrophe-related losses and lower taxes, as well as favourable loss reserve development during the period.

The group combined ratio dropped to 94.5 percent in the first half of 2018, down 2.0 points from the prior year.

Strong group operating results in the first half of 2018 reflect underwriting profitability reported by each primary insurance subsegment, while reinsurers reported a slightly higher overall combined ratio, Fitch noted.

The group reported considerable growth in net written premiums (NWP) in the first half of 2018, driven by double-digit increases in the personal, Florida specialist and reinsurer segments, which had most recently experienced increased loss costs and were most directly affected by the catastrophe events of 2017. The aggregate group NWP grew by 9.3 percent year on year, excluding the impact of Berkshire Hathaway’s (BRK’s) retroactive reinsurance agreement with AIG that occurred in the first half of 2017.

The personal lines group reported the greatest improvement in underwriting results in the first half of 2018, excluding Florida specialist insurers, with a 3.5-point improvement in the aggregate combined ratio to 91.7 percent, according to Fitch. The aggregate result is consistently driven by the results for the group’s two significantly larger members, The Allstate Corporation and Progressive Corporation, despite greater individual company improvement by some smaller companies, the agency noted. Allstate and Progressive have reported better combined ratios, declining by 3.9 points and 2.8 points, respectively, demonstrating the scale advantage and pricing sophistication of these two major players, Fitch said.

Fitch believes that specialty writers will benefit in the near term from higher property rates, specifically in catastrophe-prone areas, as well as increased casualty prices. The specialty insurers group reported an operating return on average equity (ROAE) of 8.7 percent for the first quarter of 2018, up from 7.0 percent in the prior year.

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