US Property/casualty insurers' operating performance improved in the first half of 2013 as a result of lower catastrophe-related losses and benefits from premium rate increases across many product segments, according to the Fitch Ratings report: 'U.S. Property/Casualty Insurers' Mid-Year 2013 Financial Results'.
The aggregate combined ratio of 47 publicly traded property/casualty (re)insurers improved to 93.5 through mid-year 2013 from 96.2 in the prior year. Each segment in Fitch's universe reported an accident year underwriting profit in the first half of 2013, with only nine individual companies posting deterioration in results.
The aggregate group reported an operating profit of $25.2bn through mid-year 2013 versus a $23.3bn operating gain in the previous year. The group's operating return on average equity (ROAE), which excludes realized gains and losses from earnings, grew to 9.1% in the first half of 2013 from 8.8% in the prior year. Only seventeen companies in the group have reported an annualized operating ROAE above 10% thus far in 2013.
As interest rates in the US increased meaningfully in the second quarter, nearly all companies experienced sizeable gross unrealized losses in their fixed-income portfolios. In the most recent quarter, the group aggregate net unrealized gain position dropped by 44% to $33.9bn from approximately $60bn at March 31, 2013. The current aggregate net unrealized gain position represents approximately 6.0% of the group's shareholders' equity at mid-year 2013, down from 12.1% at year-end 2012.
Fitch continues to believe that after recognizing significant reserve redundancies over the last five years, the property/casualty industry loss reserve position is approaching closer to adequate levels. A handful of individual (re)insurers have experienced unfavourable development thus far in 2013. However, favourable development continues to boost underwriting performance, representing approximately 2.4% of earned premium in first-half 2013 versus 2.5% in the prior year.
Shareholders' equity grew by 1.4% for the group since year-end 2012, as strong earnings were mostly offset by unrealized investment losses and active capital management by individual companies. Share repurchase activity increased modestly relative to first-half 2012, with (re)insurers repurchasing more than $6.2bn of Treasury shares. Underwriting leverage, measured by annualized first-half net earned premiums divided by common equity is virtually unchanged year over year at 0.52x.
The full report is available at www.fitchratings.com.
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