U.S. p&c industry posts improved underwriting results and net income through the first half of 2015: A.M. Best

The United States’ property and casualty industry posted improved underwriting results and net income through the first six months of 2015, according to a special report released on Monday by ratings agency A.M. Best Company.

The Best Special Report, titled P/C Industry posts improved underwriting results and net income during first half of 2015, also noted that growth in net premiums written remains solid and with continuing benign loss trends. However, the improvements were offset by increased stockholder dividends and other changes in surplus and unrealized capital losses. As a result, policyholders’ surplus was essentially unchanged at June 30, 2015, at US$683.7 billion, from its prior-year position despite the improved net earnings. [click image below to enlarge]

In particular, underwriting expense growth outpaced premium growth through the first two quarters of 2015, with total underwriting expenses for the industry up 4.3%, to US$71.7 billion in 1H 2015 from US$68.7 billion in 1H 2014. Net premiums written were up 3.9%, from US$249 billion in the first half of 2014 to US$258.8 billion in the first half of this year.

The overall industry recognized a higher level of favourable development of prior years’ core (i.e., not related to asbestos and environmental losses) loss reserves, with the combined ratio benefiting from 3.6 points of favourable development, up from 3.3 points during the first six months of 2014, A.M. Best added in a press release. The combined ratio for the total p&c industry in first-half of 2015 was 97.8, a slight improvement from the 99 recorded in the same period in 2014.

Earnings for the personal lines segment through the second quarter of 2015 increased substantially from the prior year-to-date, A.M. Best noted in the press release. After-tax net income was US$9.9 billion for the six months ending June 30, 2015, compared with approximately US$7.3 billion for the first six months of 2014. The increase was attributed primarily to higher realized capital gains and pretax operating income.

Looking at the commercial lines segment, A.M. Best reported a 5.4% increase in direct premiums written through June 30, 2015, to approximately US$134.7 billion, up from about US$127.8 billion during the same period last year. Key drivers of this increase continue to be workers’ compensation, other (general) liability, auto liability and inland marine.

Pretax operating income of nearly US$7 billion was up by 17.1% at the end of the second quarter of 2015, compared with just under US$6 billion for the second quarter of 2014. The underwriting loss at mid-year 2015 was almost US$745 million, compared with an underwriting loss of US$2.3 billion for the same period in 2014. An increase in capital gains and a decline in incurred income taxes boosted net income by 17.9% over the prior year period, to US$31 billion.

“In light of these mid-year results, the industry appears to be on track to post a third consecutive year of underwriting profits, barring any late year catastrophic losses,” the ratings firm concluded in the press release.