P&C underwriting cycles are growing shallower, affecting profitability (Photo: docstockmedia/Shutterstock)
Surplus for the ALIRT Property & Casualty (P&C) Composite rose 5.1% in 2014 on strong operating earnings of $25.2 billion and net capital gains of $15.7 billion, partially offset by shareholder dividends and other miscellaneous charges, according to the “Year End 2014 P&C Industry Review” report, released March 19 by ALIRT Insurance Research LLC, Windsor, Conn. The Composite is composed of 50 large U.S. P&C insurers (excluding professional reinsurers), representing approximately 53% of total industry net written premium.
The report also notes that underwriting and operating results were weaker than in the same period in the prior year, but they did remain above historical averages by most measures, supported by continued positive pricing and moderate catastrophe and weather-related losses. Accident year underwriting results nearly broke even, and prior year reserve releases, while lower, continued to contribute to underwriting gains. Direct and net premiums written increased, the report says, though at lower rates than in the prior two years, attributable to firmer pricing and slowly improved economic conditions.
From 1997 to 2001 the industry found itself in a “significant soft market” in which pricing on broad commercial coverage dropped as insurers hoped to make up for underwriting losses with investment income. The industry saw significant price hikes from 2002 to 2004, which improved cash flow until the financial crisis of 2008.
Net operating cash flows bottomed out in 2011, according to the report, at which point pricing again became positive and P&C cash flow again improved. Soft pricing reversed in 2012 before doing “real damage” to most insurer’s balance sheets, the report says. Prices rose for two years, then began to ease again, although they remain positive.
Next page: 5 reasons why this underwriting cycle is an anomaly
