NATIONAL COVERAGE
News & Markets Growth, Profitability to Continue for U.S. Commercial Lines: Fitch
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itch Ratings said it maintains a stable rating outlook for the U.S. commercial lines sector due to improving profitability over the past two years and strong capital levels allowing insurers to withstand considerable adversity. Fitch’s fundamental outlook on the commercial lines sector is also stable, reflecting challenges to further improve profitability going forward. In its latest market update report for the U.S. commercial lines insurance market, Fitch discusses the continuing trend of growth and profitability for the sector. In 2013, commercial lines experienced a third straight year of favorable premium growth, fueled by hardening market conditions that have persisted over the last 10 consecutive quarters. Net written premiums increased by 3.6
percent for commercial lines in aggregate in 2013, which was moderately less than 2012’s growth rate. The reported accident year loss ratio improved by nearly 6 points over the prior year to 67.7 percent in 2013. Property related segments reported the strongest changes given modest catastrophe losses in 2013, Fitch said. Workers’ compensation results improved, but this segment continues to generate a significant underwriting loss. Medical professional liability is the one segment with weak pricing and deteriorating underwriting results, according to the rating agency. Fitch said it expects commercial lines accident year loss ratios to show moderate improvement in the near term with continued, albeit lower, price increases and modest loss cost growth. The current hardening phase of the
commercial lines underwriting cycle differs from previous hard markets. Specifically, Fitch said “recent price increases represent a response to past underwriting losses, and recognition that underwriting profits are the only viable replacement for falling investment income.” On a calendar year basis, commercial lines underwriting results continued to be favorably affected by recognition of reserve redundancies from prior accident years in 2013. Reserve releases increased in 2013 in spite of expectations for slowing development and several instances of significant unfavorable reserve actions, Fitch said. Although calendar year development was favorable and improved from year-toyear, Fitch said there is a wider disparity in reserve experience by segment.
Global Reinsurer Capital at All-Time High of $540B: Aon Benfield
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he latest edition of the Aon Benfield Aggregate (ABA) report estimates that global reinsurer capital totaled $540 billion as of Dec. 31, 2013, an increase of 7 percent ($35 billion) over the year, with net income up 16 percent to $34 billion, “aided by below average natural catastrophe losses and more favorable prior year reserve development. Return on equity improved to 10.6 percent The report, which analyses the financial results of the world’s leading reinsurers in 2013, “is a broad measure of capital available for insurers to trade risk with and includes both traditional and alternative forms of reinsurance capital,” the bulletin explained. The latest study found that capital reported by the ABA group of 31 leading reinsurers “increased by 6 percent ($20 billion) to $337 billion, driven primarily by $34 billion of net income. Repatriation of equity capital in the form of dividends and share buybacks rose by 15 percent to $20 billion, partly reflecting the increasing engagement of third party capital.” 10 | INSURANCE JOURNAL-NATIONAL April 21, 2014
Other key findings of the ABA study include the following: Gross property and casualty insurance and reinsurance premiums written by the ABA rose by 5 percent to $199 billion, driven by acquisition effects and exposure growth in emerging markets. The ABA combined ratio improved by 2.8 percentage points to 89.6 percent, with all constituent companies reporting underwriting profits. Disclosed catastrophe losses fell by 38 percent to $7.9 billion, contributing 4.7 percentage points to the combined ratio. Favorable prior year reserve development rose by 23 percent to $8.7 billion, benefiting the combined ratio by 5.2 points. Net investment income was stable in dollar terms, but the yield fell by 30 basis points to 3.1 percent and is now down by a third since 2006. ABA companies continue to extend
their engagement with third party capital, principally via sidecar sponsorship and the formation of in-house fund management operations. Mike Van Slooten, head of Aon Benfield’s International Market Analysis team, said: “Reinsurers have reported resilient results in an increasingly competitive marketplace. Most are now adapting their business models to accommodate the increasing availability of lower cost capital, thereby enhancing both their risk transfer capabilities and their offerings. www.insurancejournal.com