Fitch: Niche P/C Insurer Leads Statutory Performance Ranking
The five-year period encompassing 2011 - 2015 saw a wide variety of market conditions for U. S. P/C insurers. Material underwriting losses in 2011 were driven by soft market conditions and inordinately large catastrophe losses. These results promoted a broad hardening of market premium rates, leading to three consecutive years (2013 - 2015) of industry statutory underwriting profit, a feat unmatched since the early 1970s.
"A return to more competitive pricing and a reduced contribution to earnings from investment income will create profit challenges for insurers going forward," said Douglas Pawlowski, Fitch Ratings.
Fitch calculated its ranking based on a combination of five factors weighted towards ratios that serve as a more complete measure of overall value creation including: underwriting margin, operating cash flow ratio, return on assets, return on surplus and internal capital formation. Reviewing longer-term results provides a better indication of overall performance than any single calendar year due to the inherent volatility of P/C insurance and vulnerability to large loss events in any single year.
The five-year cumulative industry underwriting loss relative to earned premiums was negative 0.8% and remains strongly influenced by 2011's weather-related losses. In fact, the industry's underwriting margin in 2011 of negative 8.6% represented the industry's worst results since 2002. P/C industry operating cash flows amounted to 11.7% of premiums collected in 2015, down from 12.0% the prior year. The P/C industry's return on assets reached 3.2% in 2015, down modestly from 3.6% the prior year. The P/C industry's return on surplus was 8.5% in 2015, compared with a five-year average of 7.9%; however, this level of return remains well below the double-digit returns seen in hard market years 2004 - 2007. The capital formation ratio for the P/C industry was 3.7% in 2015, down considerably from 8.7% in 2014 and 17.7% in 2013, mainly due to lower total investment returns.
"The top performers tend to have higher Insurer Financial Strength ratings while lower ranked performers consistently generated an underwriting loss and were ranked lower for capital formation," added Pawlowski.
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