P&C industry profit up, but declining investment income a concern: Fitch

DAILY NEWS Mar 15, 2013 2:07 PM

 2013-03-15

 Operating profits for the property and casualty industry generally improved last year, although several individual companies’ performances were “below par,” says Fitch Ratings.

 The company’s analysis of full year earnings from 48 publicly traded insurers and reinsurers suggests a 75% improvement in operating earnings and operating return on equity of 7.3% versus 4.4% in 2011. The underwriting combined ratio for those companies was 98.6%, compared to 103.4% in 2011, the ratings company also noted. 

That improvement is mainly because of reduced natural catastrophe losses and “core loss ratio improvements from recent underwriting and pricing actions,” Fitch said in a statement. Natural catastrophe losses were, however, higher than historical norms, it added. Such losses represented 7% of earned premium last year, versus 11% in 2011.

“Declining investment income in the prolonged low interest rate environment and a reduced benefit from favorable loss reserve development modestly dampened the group's 2012 financial performance,” Fitch added in a statement. 

Additionally, only a third of the companies Fitch looks at generated an underwriting profit on an accident-year basis last year, it said, and only a quarter of those companies reported an operating return on equity of 10% or higher for the year. 

“Continued momentum in premium rate increases and a reversion towards historical insured catastrophe loss levels would promote further profitability improvement in 2013,” Fitch said, noting that it will release a more comprehensive report on U.S. companies’ performance on March 18.